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Is WisdomTree U.S. High Yield Corporate Bond ETF (WFHY) a Strong ETF Right Now?

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The WisdomTree U.S. High Yield Corporate Bond ETF (WFHY - Free Report) made its debut on 04/27/2016, and is a smart beta exchange traded fund that provides broad exposure to the High-Yield/Junk Bond ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Methodologies like equal-weighting, one of the simplest options out there, fundamental weighting, and volatility/momentum based weighting are all choices offered to investors in this space, but not all of them can deliver superior returns.

Fund Sponsor & Index

The fund is managed by Wisdomtree. WFHY has been able to amass assets over $202.03 million, making it one of the average sized ETFs in the High-Yield/Junk Bond ETFs. Before fees and expenses, this particular fund seeks to match the performance of the WisdomTree Fundamental U.S. High Yield Corporate Bond Index.

The WisdomTree U.S. High Yield Corporate Bond Index is a rule-based alternatively weighted Index designed to capture the performance of selected issuers in the U.S. high yield corporate bond market that are deemed to have attractive fundamental and income characteristics.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for WFHY are 0.38%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 5.59%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Looking at individual holdings, Dish Dbs Corp 7.75% 7/1/2026 accounts for about 0.89% of total assets, followed by Frontier Communications 5% 5/1/2028 and Nationstar Mtg Hld Inc 6% 1/15/2027.

The top 10 holdings account for about 7.57% of total assets under management.

Performance and Risk

So far this year, WFHY has added about 0.98%, and is down about -5.49% in the last one year (as of 03/22/2023). During this past 52-week period, the fund has traded between $42.47 and $49.69.

WFHY has a beta of 0.47 and standard deviation of 10.09% for the trailing three-year period. With about 436 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree U.S. High Yield Corporate Bond ETF is a reasonable option for investors seeking to outperform the High-Yield/Junk Bond ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

IShares Broad USD High Yield Corporate Bond ETF (USHY - Free Report) tracks BofA Merrill Lynch U.S. High Yield Constrained Index and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG - Free Report) tracks Markit iBoxx USD Liquid High Yield Index. IShares Broad USD High Yield Corporate Bond ETF has $8.75 billion in assets, iShares iBoxx $ High Yield Corporate Bond ETF has $12.93 billion. USHY has an expense ratio of 0.15% and HYG charges 0.48%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the High-Yield/Junk Bond ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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