Schwab High Yield Bond ETF (SCYB) seeks to track the performance of high-yield corporate bonds, which are debt securities issued by companies with below-investment-grade credit ratings (BB+ and lower). This fixed income ETF provides exposure to bonds offering higher yields to compensate investors for increased default risk.
How It Works
SCYB uses a passively managed approach that tracks a market-value-weighted index of U.S. dollar-denominated high-yield corporate bonds. The fund holds bonds across various sectors and maturities, typically ranging from 3-7 years average duration. Holdings are rebalanced monthly to maintain index alignment and replace bonds that mature, are called, or experience credit rating changes that remove them from the high-yield universe.
Key Features
- Zero expense ratio makes it one of the most cost-effective ways to access high-yield bond exposure
- 5.90% dividend yield significantly exceeds investment-grade bonds and money market funds for income-focused investors
- Recently launched in July 2023, offering Schwab's low-cost approach to the established high-yield bond market
Risks
- This ETF can lose value when companies default on bonds or face credit downgrades, potentially causing 10-20% declines during economic stress
- Rising interest rates reduce bond values, with 5+ year duration bonds declining approximately 5% for each 1% rate increase
- High-yield bonds correlate with stocks during market stress, potentially declining 20-30% alongside equity markets in severe recessions
Who Should Own This
Best suited for income-focused investors with medium-to-high risk tolerance seeking higher yields than investment-grade bonds. Appropriate as 10-25% allocation in diversified portfolios with 3+ year time horizons. Works well for investors comfortable with credit risk who want monthly income distributions exceeding traditional bond funds.