JNK and HYG are the two most widely recognized high-yield bond ETFs. JNK is part of SPDR funds and is managed by State Street Global Advisors. HYG is Barclay’s high-yield bond ETF. They both replicate Barclay’s Capital High-Yield Liquid Bond Index. If there was a choice between the two it is evident that JNK is favoured by traders as its daily volume is almost triple that of HYG. The high volume offers better liquidity and pricing.
There are a few issues to consider when investing and trading in these two bond ETFs. First, some investors buy these bonds just before the ex-dividend date in order to receive the monthly distribution. Inevitably the market will go down at the ex-dividend date in proportion to the amount of declared dividend, and sometimes even more. When trading these bond ETFs, it is better to cash out before the ex-dividend date and consider your gain a capital gain. This strategy may offer a tax advantage.
A second consideration is the capital gain declaration within the fund. At the end of the calendar year both of these ETFs may go up in value temporarily in proportion to the capital gain that is realized within the fund, which will be declared before the year end. When trading these two bonds it is important to make note of these distributions and the ex-dividend dates.
Finally, these two ETFs offer more of an equity play than fixed income. The benefit is the ability to get some capital gain as well as monthly dividend during market bull runs with less volatility than equity ETFs.