High-yield exchange-traded funds (ETFs) struggled last year, in part because energy bonds took a beating when oil prices fell. Does that make an ETF that avoids energy bonds a good idea? We don’t think so.
At least one asset manager recently launched an ETF that invests in every high-yield sector except energy. The idea is to limit the risk of losses and default associated with low oil prices, which can make it hard for oil and gas companies to service their debt.
That may sound appealing to investors whose portfolios were hurt by plunging commodity prices in 2014 and 2015. But we think the approach is a short-sighted one.