The ETF tracks a US high yield ex-financials index and holds non-financial corporate bonds rated BB and B, the tier just below investment grade, using a market-capitalization-weighted approach. Rather than covering the entire high yield market, it limits its scope to the middle-to-upper credit quality range, seeking basic spread income while avoiding the high default risk of speculative-grade bonds.

It suits investors who want the coupon income of high yield bonds but wish to reduce exposure to lower-rated, higher-risk bonds, as well as investors who want to keep financial sector bonds out of their portfolios.

It is a passively managed (index-tracking) ETF launched by Xtrackers in 2016.

Within the high yield universe, the fund selects only the BB and B rated tier and excludes all bonds issued by financial companies. This builds a high yield exposure centered on non-financial corporations, reducing both the lower speculative-grade tier and the regulatory and credit cycle risks specific to the financial industry. It holds index constituents at their market-capitalization weights and rebalances automatically on a quarterly basis.

• Complete exclusion of lower speculative grades ensures rating selectivity
• Excluding financial sector bonds keeps the focus on non-financial companies only

Assets under management (AUM) stand at $3.1B, and the expense ratio is 0.20% per year.

Because the fund tracks a relatively narrow rating range compared with similar high yield ETFs, its fund flows and spread movements can differ from those of ETFs tracking the broad high yield index.

High yield bonds react sensitively to the interest rate environment and to changes in credit spreads. The BB and B tier tends to show relatively milder spread swings than the overall high yield index. It faces downward price pressure during rate-hike phases, and tends to recover in price through spread tightening when rates stabilize or fall.

Fund flows across high yield bond ETFs tend to be driven by the economic cycle and the direction of Federal Reserve monetary policy. Thanks to its selective structure that excludes the financial sector, investor interest may rise relatively during periods when financial sector credit risk comes into focus. However, during a broad credit tightening phase, it may face outflow pressure along with the high yield category as a whole.

Rating selectivity and the exclusion of the financial sector are its core strengths, while the credit risk and interest rate sensitivity inherent to high yield are the main risks.

Among the comparison ETFs shown in the table, HYG and SPHY are representative ETFs that track the high yield market as a whole, offering full high yield exposure without rating selection, with differences in fees and liquidity. USHY tracks the broad high yield market at a low fee, while LQD and USIG are investment-grade corporate bond ETFs that offer higher credit quality than BHYB but lower yields. If you want a similar rating-selective high yield approach but prefer a different structure, HYLB is a candidate, and if you want to specialize in fallen angel bonds within high yield, ANGL is the natural comparison. JNK tracks the overall high yield index with a somewhat higher fee, but stands out for its liquidity and options market.

Before investing in BHYB, it is important to review credit risk, interest rate sensitivity, and what the financial exclusion strategy means. High yield bonds respond to the economic cycle differently from equities, so you should clearly define their role within your portfolio.

By the nature of high yield bonds, wider spreads and falling bond prices can occur together during a recession or credit tightening phase. Rating selection lowers default risk compared with lower grades, but credit risk remains embedded relative to investment-grade bonds, so it is necessary to check your own risk tolerance.

It is a structurally good fit for investors who seek high yield income while reducing exposure to lower-rated, high-risk grades and financial sector bonds. If you want broad high yield exposure, HYG, USHY, and SPHY are alternatives, and if you want investment-grade stability, LQD and USIG are alternatives.