When investors hear “high-yield,” they often think of a single, monolithic asset class. It’s the riskier corner of the bond market, offering bigger payouts to compensate for lower credit quality. But what if I told you that the “high-yield” label on an ETF is more like the Scoville scale than a single ingredient? Just as peppers can range from a mild, flavorful poblano to a fiery habanero, “high-yield” can hide a wide spectrum of risk, reward, and intensity.
This is the core idea behind our “Factor Flavors” series: to look under the hood of popular factor ETFs and uncover what makes each one unique. Today, we’re tasting the different flavors of high-yield by comparing four distinct ETFs:
- JNK – SPDR Bloomberg High Yield Bond ETF
- XBB – BondBloxx BB-Rated USD High Yield Corporate Bond ETF
- XB – BondBloxx B-Rated USD High Yield Corporate Bond ETF
- XCCC – BondBloxx CCC-Rated USD High Yield Corporate Bond ETF
Let’s dig in and see how their different methodologies create surprisingly different outcomes.
The Performance Story: A Tale of Two Markets
A quick glance at performance shows these are not interchangeable funds. Their unique construction methods lead to very different journeys, especially through changing market conditions. Let’s look at the calendar year returns to see the story unfold.
- The 2022 Downturn: When markets turned south in 2022, the quality of a bond portfolio mattered immensely. The highest-quality high-yield fund, XBB, was the most defensive, falling only -12.44%. The broad-market JNK fell a bit more at -13.05%. But as we move down the credit ladder, the pain increased, with XCCC—the riskiest of the bunch—falling a staggering -19.24%. This is a classic flight to quality in action.
- The 2023 Rebound: In the subsequent rally, the roles completely reversed. Investors were rewarded for taking on risk. XCCC came roaring back with a 13.53% gain, leading the pack. JNK and XB posted solid gains of around 11-13%, while the more conservative XBB lagged with a 5.59% return.
This performance story is the perfect illustration of the high-yield spectrum: the lower the credit quality, the more equity-like the behavior.
Under the Hood: Finding the Flavor Profile
Performance is just the outcome. The real “why” is found in how these funds are built. Each has a distinct personality. For our analysis, it’s important to note that all risk metrics like beta and capture ratios are measured against the iShares Core U.S. Aggregate Bond ETF (AGG) to provide a consistent baseline.
JNK: The Jalapeño
- Flavor Profile: Think of JNK as the classic Jalapeño. It’s the go-to for adding a noticeable kick to a portfolio. It tracks a broad index of high-yield bonds, giving you a little bit of everything. It’s not the mildest or the hottest, but it provides a reliable, representative taste of the entire U.S. high-yield market.
- The Data Story: With a 3-year beta of 0.84 against AGG, it’s clearly taking on credit risk. Its Yield to Maturity of 7.0% and an Option-Adjusted Spread (OAS) of 294 bps quantify the extra yield investors receive for taking on broad-market credit risk. It’s the jack-of-all-trades in this group.
XBB: The Poblano
- Flavor Profile: This is the mildest of the high-yield funds we’re examining, like a flavorful Poblano pepper. XBB focuses exclusively on BB-rated bonds, the highest quality tier within the “junk” bond universe. It’s designed for the investor who wants the flavor of high-yield without scorching their palate.
- The Data Story: Its defensive nature is clear in the risk stats. It has the lowest 3-year downside capture (37.78%) of the group, and its OAS of 182 bps is the tightest, reflecting its higher credit quality. This safety comes at the cost of a lower Yield to Maturity of 6.0%.
XB: The Serrano
- Flavor Profile: Sitting between the mild XBB and the fiery XCCC, this fund is the Serrano pepper of the group. It targets B-rated bonds, taking a clear step up in heat. It seeks to offer a balanced blend of higher yield and manageable risk for those with a tolerance for a bit more spice.
- The Data Story: Its metrics sit squarely in the middle. The Yield to Maturity is 7.1%, and its OAS of 294 bps is identical to the broad-market JNK, showing a representative level of credit risk. Its 3-year upside capture (89.67%) and downside capture (30.59%) show a balanced risk/reward profile.
XCCC: The Habanero
- Flavor Profile: This is the pure-play on portfolio heat. XCCC invests only in CCC-rated bonds, the lowest rung on the credit ladder before default. Like a Habanero, it’s intensely potent. This is a high-conviction, aggressive strategy designed to capture the highest possible yields and capitalize on market rebounds, but it’s not for the faint of heart.
- The Data Story: The numbers are dramatic. It boasts a massive Yield to Maturity of 10.5%, and its huge OAS of 730 bps quantifies the substantial risk premium. The 3-year upside capture of 107.63% shows it can significantly outperform in rallies. However, the 2022 performance shows the real-world volatility. This is a tactical tool for risk-tolerant investors.
Conclusion: Choose Your Flavor
As we’ve seen, not all high-yield ETFs are created equal. The “flavor” you choose should align directly with your investment goals and risk tolerance.
- For broad, diversified exposure: JNK offers a simple, one-stop-shop for the entire high-yield market.
- For a cautious step into high-yield: XBB provides a more defensive posture by focusing on the highest-quality junk bonds.
- For a balanced risk/reward profile: XB sits in the middle of the credit spectrum, offering a solid yield for moderate risk.
- For maximizing yield and return potential: XCCC offers the highest octane exposure but comes with significant volatility.
The key takeaway is to always look beyond the label. Understanding the methodology behind a factor ETF is the only way to know the true flavor you’re getting.
Ready to find your perfect flavor? The analysis in this post was based on a detailed Fund Comparison Report. Sign in to view the full report and use our powerful tools to run your own comparisons.
This content was created with the assistance of AI and is for informational purposes only. It is not a recommendation to buy or sell any securities.
