IBHG: A True 2027 High-Yield Bond Term ETF Rates A Buy

2025-05-21 08:00:00 ET

Summary

• iShares® iBonds® 2027 Term High Yield and Income ETF stands out by holding bonds maturing in 2027, minimizing interest-rate risk at termination—unlike many so-called 'term' funds.
• The IBHG ETF offers a 6.76% yield, focusing on high yield and BBB-rated bonds, with most holdings below BB, reflecting elevated credit risk.
• Compared to investment-grade and Treasury iBonds, IBHG delivers higher yield and positive alpha, but investors must weigh default risk, especially in economic downturns.
• Investors should be wary of 'term' funds that hold bonds maturing after their stated end date, as this exposes them to unwanted interest-rate risk.

Introduction

A recurring pet peeve of mine as a fixed income investor is the use of the word “Term” in a bond fund’s name. All the funds I’m aware of include that word to indicate the fund will terminate on a set date, but many then hold fixed income assets that mature after that date, exposing the investor to interest-rate risk as some assets will need to be sold to close down the fund. That is where the word “term” is misleading or incomplete in my opinion. If rates have climbed since some of the portfolio was acquired, the fund would incur losses on those holdings when terminating. For me to hold a fund with a termination date, I want all (or at least 99%+) maturing before that date. The iShares® iBonds® 2027 Term High Yield and Income ETF ( IBHG ) meets my definition and is part of my fixed income ladder....

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