BlackRock: Here’s What Investors Need To Know About HYG

From BlackRock: The market’s first high yield bond ETF turns 10, and there is a lot about the fund that you may not know.

Break out the party hats and balloons, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) turns 10 this month. I know, I know, many of you are thinking “so what?” It is kind of like when a friend’s kid has a birthday, you wish the family well but really it doesn’t have a big impact on your life. But I think the 10-year mark for HYG is a bit different, and it’s something worth celebrating.

The fund started out with the idea of giving investors access to a diversified portfolio of high yield bonds on the stock market. Back then the question was: Who would use it? 10 years later, the answer is clear: HYG has become an integral part of fixed income markets. It is used by individuals to seek income, by large institutions to help manage liquidity, and by everyone in between. As we mark HYG’s 10-year milestone, here are 10 things you probably didn’t know about the fund.

1. Consistent performance

Since inception HYG’s annualized performance has been within 4 basis points (bps) of its index after fees.1 Its tight tracking stretches over a volatile period that included the 2008 financial crisis, the U.S. Treasury downgrade, the European sovereign debt crisis, and the collapse in oil prices.

2. Universal appeal

HYG is not just for institutional investors. Retail investors have also embraced HYG, and they make up approximately 51% of the fund holders.2

3. Room to grow

HYG has grown to over $17 billion in assets under management (AUM). Even so, it represents less than 2% of the overall high yield bond market.3

4. From over-the-counter to exchange-traded

84% of HYG’s trading occurs on equity exchanges like the New York Stock Exchange, without a bond needing to be traded. With over $750 billion in trades to date, HYG has become a robust source of liquidity for high yield investors.4

5. Bond trading, fast forwarded

Unlike individual bonds, HYG can be traded as easily and rapidly as a stock. One of the most actively traded high yield bonds (Sprint 6% 11/15/22) traded on average 45 times per day in December 2016. HYG traded over 23,000 times per day on average during the same time period.5

6. One basis point spread

HYG has been 50 times cheaper to trade than a high yield bond: 1 bp bid/ask vs. 50 bps for the cash bonds.6

7. A “go-to” in a crisis

When high yield markets become volatile, investors turn to HYG. For example, on 11 December 2015, the onset of the high yield crisis, HYG traded $4.3 billion, the most ever for a corporate bond exchange-traded fund (ETF).7

8. Open for business

HYG can provide an alternate venue for liquidity when the bond market is closed or impaired. For example, in 2016 HYG traded an average $1.7 billion on the exchange on Veterans Day and Columbus Day.8

9. Supported by a broad ecosystem of investment professionals

There are 49 different firms that provide liquidity for HYG throughout the day, almost as many as the FedEx stock.9

10. A player in the options market

HYG’s options market has tripled since 2015 to $12 billion today. If this market were its own fund, it would be the eighth largest fixed income ETF in the U.S.10

HYG can be a good complement to a core bond position, providing a source of higher income potential and diversification. Coming off of a 10-year record of successful trading, HYG has played its supporting role well in many portfolios.

The iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) was unchanged in premarket trading Tuesday. Year-to-date, HYG has gained 0.94%, versus a 5.28% rise in the benchmark S&P 500 index during the same period.

HYG currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 36 ETFs in the High Yield Bond ETFs category.


Matt Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog.

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The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.iShares.com or www.blackrock.com. For standardized performance for HYG, please click here.

1. Source: BlackRock, as of 1/31/17. HYG’s inception date is 4/4/07. Based on price basis, excluding HYG’s expense ratio of 50 bps. Past performance does not guarantee future results.

2. Source Global Business Intelligence, as of 12/31/16.

3. Source: Bloomberg and BlackRock, as of 12/31/16.

4. Source: Bloomberg, from 1/1/16-12/31/16. There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.

5. Source: Bloomberg. As of 2/22/17 Sprint Nextel Corp 6% 11/15/22 represented 0.2721% of HYG.

6. Source: Bid ask on ETFs = 30 day average, Bloomberg as of 12/16/16. Source for bid ask on underlying bonds: BlackRock.

7. Source: Bloomberg and BlackRock.

8. Source: Bloomberg and BlackRock.

9. Source: Bloomberg from 2/2/17-2/13/17. FedEx has approx. 50 different firms that provide liquidity. These figures do not change dramatically over time.

10. Source: Bloomberg and BlackRock, as of 12/31/16.

This article is brought to you courtesy of BlackRock.

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