SPDR Portfolio High Yield Bond ETF

SPHY

Market cap $9.24B

Known to many for supporting ETF institutional investors that favor liquidity, State Street Investment Management has increasingly grown its ETF business by focusing on advisors and retail investors. With the launch today of a new low-cost ultra-short bond ETF, the firm has further supported that community.

I reiterate a hold rating on SPHY, as high-yield spreads are tight and upside appears limited despite a strong macro backdrop. SPHY offers a reasonable yield near 7%, low expenses, and solid liquidity, making it a decent choice for retail investors in tax-sheltered accounts. Technical signals are mixed, with shares stuck below $24 resistance and a flat 200-day moving average, suggesting continued range-bound trading.

My top financial goal is to grow my passive income to the point where it will cover my basic living expenses. That would give me freedom from worrying about working to pay the bills.

SPHY offers exposure to US high-yield corporate bonds with attractive yields and low call risk, making it suitable for income-focused investors. Current macroeconomic indicators—loose financial conditions, stable bank reserves, and moderate volatility—support a favorable environment for high-yield bonds. Credit spreads remain compressed, reflecting healthy market sentiment; monitoring for spread widening is crucial for risk management.

Earlier in May, VettaFi hosted an Income Investment Strategy Symposium. Many of the experts we talked to highlighted ETFs and we partially marketed the event on this website with “ETF” in the name.

The ongoing trade war has led to a massive increase in uncertainty and bearish sentiment. Credit spreads have widened as a result, going from their lowest levels in history, to solidly above-average. Investing in high-yield corporate bond funds seems like an easy way to profit from these changes.

The S&P 500 has plunged 15% since President Trump's tariff announcement, impacting US stocks, global equities, Treasuries, commodities, and crypto. SPHY, a high-yield bond ETF, has seen significant growth but is vulnerable due to its high exposure to Consumer Discretionary and Energy sectors. Despite a high yield to maturity of 9%, SPHY faces risks with a potential 600 basis point junk bond spread, suggesting further price drops.

The HY segment is facing unique challenges, with recession fears outweighing benefits from expected Fed rate cuts, leading to wider spreads and potential default rate increases. SPHY has a competitive expense ratio, offering a better yield than USHY despite being less liquid. Key risks include declining corporate revenues, a wave of debt refinancing in 2025-2026, and capital flight to safer assets, which could further widen spreads.

Stock prices are high and concentrated, which implies below-average long term returns, while high starting yields are favorable for bonds. The article recommends a balanced approach to investing in bonds, which may include a portion in high-yielding funds with a history of high risk-adjusted performance. Fourteen funds in High Yield, Loan Participation, and Investment Grade Lipper Categories are analyzed.

Interest rates have fallen recently, and despite initial inflation concerns post-election, disappointing economic data has led to softer Treasury rates. SPHY offers a 7.5% yield to maturity with a low expense ratio, but tight credit spreads signal confidence in low-quality issuers meeting obligations. SPHY's performance has been strong, with a bullish technical outlook and historical January gains, but I maintain a hold rating due to compressed yields.