Warning: 3 High-Yield ETFs That Could Plunge By Next Year

Three high-yield ETFs may experience significant declines next year, according to recent analysis. U.S. debt exceeds $40 trillion, with interest rates on it steadily increasing. Brent crude is near $100 and may rise further, depending on the Middle East situation. Despite the possibility of averting a crisis, investors should be cautious regarding these three ETFs.

The ETFs in question are the iShares iBoxx $ High Yield Corporate Bond ETF (HYG), iShares Preferred and Income Securities ETF (PFF), and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ). ETFs that heavily rely on yields tend to be the most sensitive to high Treasury yields and market shocks. HYG invests in the debt of companies with below-investment-grade credit ratings, leading to a high 5.99% yield.

PFF and JEPQ also feature high yields, with 5.41% and 5.99% respectively. However, these ETFs are becoming increasingly vulnerable as Treasury yields approach near-record highs. HYG alone holds significant junk bonds, while PFF and JEPQ are exposed to growth stocks. Investors should reconsider holding these ETFs if the economy is expected to continue growing without a recession in sight.