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

Launched on 04/27/2016, the WisdomTree U.S. High Yield Corporate Bond ETF WFHY is a smart beta exchange traded fund offering broad exposure to the High-Yield/Junk Bond ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

The fund is managed by Wisdomtree. WFHY has been able to amass assets over $229.86 million, making it one of the average sized ETFs in the High-Yield/Junk Bond ETFs. This particular fund seeks to match the performance of the WisdomTree Fundamental U.S. High Yield Corporate Bond Index before fees and expenses.

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

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.38%, making it on par with most peer products in the space.

It has a 12-month trailing dividend yield of 6.32%.

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, Crescent Energy Finance CRGY 7.25% 5/1/2026 accounts for about 0.74% of total assets, followed by Organon Finance OGN 1 Llc 5.125% 4/30/2031 and Nationstar Mtg Hld Inc 6% 1/15/2027.

The top 10 holdings account for about 6.7% of total assets under management.

Performance and Risk

The ETF has gained about 0.76% so far this year and was up about 7.77% in the last one year (as of 04/10/2024). In the past 52-week period, it has traded between $42.17 and $45.77.

The ETF has a beta of 0.48 and standard deviation of 8.78% for the trailing three-year period. With about 476 holdings, it effectively diversifies company-specific risk.

Alternatives

WisdomTree U.S. High Yield Corporate Bond ETF is not a suitable option for investors seeking to outperform the High-Yield/Junk Bond ETFs segment of the market. Instead, there are other ETFs in the space which investors should consider.

IShares Broad USD High Yield Corporate Bond ETF (USHY) tracks BofA Merrill Lynch U.S. High Yield Constrained Index and the iShares iBoxx $ High Yield Corporate Bond ETF HYG tracks Markit iBoxx USD Liquid High Yield Index. IShares Broad USD High Yield Corporate Bond ETF USHY has $11.56 billion in assets, iShares iBoxx $ High Yield Corporate Bond ETF has $16.26 billion. USHY has an expense ratio of 0.08% and HYG charges 0.49%.

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.

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