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Hidden fee in popular junk-bond ETF

Published 08/18/2017, 10:35 AM
© Reuters.  Hidden fee in popular junk-bond ETF
BARC
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HYG
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  • The $11.7B SPDR Bloomberg Barclays (LON:BARC) High Yield Bond ETF (NYSEARCA:JNK) has returned 7.37% over the past three years - that's a full 540 basis points less than its benchmark index, or an average annual lag of 169 basis points. But the expense ratio is just reported at 40 basis points.
  • "It's the most under-rated piece of ETF due diligence that's out there," says Bloomberg's Eric Balchunas of this tracking difference. "You're net cost is how much did you miss that benchmark by."
  • This in part likely explains investors' seeming preference for the $18.7B iShares USD High Yield Corporate Bond ETF (NYSEARCA:HYG). The expense ratio at 50 basis points may be higher, but the tracking difference has been just an average 79 basis points over the last three years. Another way to look at it: The cost of HYG has only about half that of JNK.
  • Now read: HYG Minus Liquidity


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