ETF Lets Investors Short High-Yield Bonds

ProShares today launched the first ETF that provides inverse exposure to the high-yield bond market. The ProShares Short High Yield (SJB) seeks to provide 100% the opposite daily performance of the Markit iBoxx $ Liquid High-Yield Index, before expenses. The ETF lists on NYSE Arca and charges an expense ratio of 0.95%.

Today’s volume was a measly 7,700 shares and the fund ended flat at its launch price of $40.

“High-yield bonds have had a strong rebound since the financial crisis, with indexes reaching all-time highs and high-yield funds attracting significant inflows over the past two years,” said Michael L. Sapir, chairman and CEO of ProShares Advisors in a written statement. “For investors who believe that high yield bonds are ripe for a pullback, SJB can be used to help hedge against or to seek to benefit from potential declines.”

The iBoxx $ Liquid High Yield Index has gained 12.6% over the past year, and 7.4% over the past three years on an annualized basis. It currently yields about 8%. To get the positive returns on this index check out the iShares iBoxx $ Liquid High Yield Corporate Bond Fund (HYG).

Inverse ETFs are not buy-and-hold instruments. As always, inverse funds only guarantee the inverse performance on a daily basis. That means if the market falls 10% over a three-month period, but experiences a lot of volatility during that time, you won’t necessarily receive a 10% return. For instance, ProShares UltraShort 20+ Year Treasury ETF (TBT) seeks to return twice the inverse daily performance, or 200%, of the Barclays Capital 20+ Year U.S. Treasury Index. In 2010, the index rose 9.38%, which means the ETF should have seen a return of negative 18.76%. However, because of volatility, the fund’s actual return was negative 26.32%.

This is ProShares’ fifth inverse bond ETFs. ProShares’ other four inverse bond ETFs are benchmarked to Treasury bonds. These include:

  • UltraShort 20+
  • UltraShort 7-10 Year Treasury (PST)
  • UltraShort TIPS (TPS)
  • Short 20+ Year Treasury (TBF)

These four ETFs have garnered more than $7 billion of assets since launching less than three years ago.

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