iShares iBoxx $ High Yield Corp Bd ETF | HYG |
Morningstar's Take
|20/05/2025by Lan Anh Tran
| IShares iBoxx $ High Yield Corporate Bond ETF provides broad exposure to US high-yield corporate bonds. But difficulties trading these bonds limit their breadth and hamper the advantages of their market-value-weighted portfolio. The fund tracks the Markit iBoxx USD Liquid High Yield Index, which holds some of the largest and easiest to trade high-yield corporate bonds. Eligible bonds must have at least USD 400 million, and eligible issuers must have at least USD 1 billion in outstanding face value. Its high minimum size thresholds help ensure there’s enough capacity in selected bonds and keep a lid on trading costs. The index excludes certain types of bonds, including those with equity and convertible features, floating-rate notes, and bonds from emerging-markets issuers. It weights bonds by their market value, subject to a 3% cap on issuers’ weight in the index. The issuer limit prevents the fund from making big bets in any single company. The resulting portfolio holds a broad and diversified slice of the US high-yield bond market. However, high-yield bonds trade less frequently than their investment-grade counterparts, which can distort the price signals that a market-value-weighted approach relies on. The lowest-rated high-yield bonds tend to experience a wide range of returns, and they skew toward some of the worst-performing bonds. Active managers are typically better positioned to avoid the worst performers and exploit mispriced bonds. Many active managers also take on a small stake in bonds rated BBB to cushion their portfolios during credit shocks. Leaving out the most difficult-to-trade bonds alleviates the fund’s trading costs but limits its scope. The fund will miss out on the full return potential of the high-yield bond market. Recent fee cuts from other passive high-yield bond funds make the fund’s 0.49% annual fee less attractive, though it still lands in the cheapest quintile of its category. Despite being cheaper than average, it has struggled to consistently outperform the category average. |
Indexing high-yield bonds is difficult.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| Pessoas | Above Average |
| Parent | Above Average |
| Processo | Below Average |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
