High-Yield ETFs: A Strategic Income Play in a Low-Growth World

In an era of tepid global GDP growth—projected at 2.9% for 2025 and 2026—investors are increasingly turning to high-yield ETFs as a cornerstone of income generation strategies. These funds, which aggregate sub-investment-grade bonds, offer yields significantly outpacing safer alternatives. U.S. high-yield bonds, for instance, currently yield 7.5%, compared to 5.33% for investment-grade counterparts, while European high-yield bonds yield 5.7% versus 3.18% for their safer peers [1]. This yield premium, combined with resilient corporate fundamentals, has made high-yield ETFs a compelling option for income-focused portfolios.

Performance in Low-Growth Economies: A Mixed Landscape

The performance of high-yield ETFs in low-growth economies has been uneven but promising in select markets. Emerging economies like Greece and Poland have outperformed, with the Global X MSCI Greece ETF (GREK) surging 46% year-to-date in 2025, driven by Greece’s 2% GDP growth and improving fiscal health [2]. Similarly, the iShares MSCI Poland ETF (EPOL) returned 41% YTD, buoyed by Poland’s 3%-plus GDP expansion and industrial strength [2]. These cases underscore how geopolitical and trade dynamics—such as U.S.-China trade shifts boosting Brazil’s agricultural exports—can amplify returns in low-growth environments [2].

However, the broader picture is nuanced. While U.S. and European high-yield markets have seen tightening credit spreads (310 and 340 basis points, respectively), reflecting strong corporate leverage ratios and low default rates, dispersion among issuers has risen [1]. This dispersion necessitates active management to avoid weaker credits. For example, active funds like Artisan High Income Fund (APHFX) and Fidelity Capital & Income Fund (FAGIX) have outperformed passive peers by blending high-yield bonds with equities, achieving superior risk-adjusted returns [4].

Navigating Risks: Default Rates and Macroeconomic Volatility

Despite their allure, high-yield ETFs are not without risks. A 4.3% default rate for sub-investment-grade bonds remains a concern, particularly in a slowing economy where cash flows for issuers may weaken [1]. The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Bloomberg High Yield Bond ETF (JNK), which offer yields of 5.77% and 6.59% respectively, have faced temporary setbacks during periods of heightened uncertainty, such as the April 2025 sell-off triggered by Trump-era tariff fears [3]. Yet, these funds rebounded swiftly as policy risks abated, illustrating their resilience in volatile markets [3].

To mitigate risks, investors are advised to adopt a diversified approach. Pairing high-yield ETFs with stable dividend ETFs like Fidelity High Dividend ETF (FDVV) or Invesco S&P Ultra Dividend Revenue ETF (RDIV) can balance yield with capital preservation [4]. Additionally, active ETFs that prioritize quality credits and sector diversification—such as Vanguard International High Dividend Yield ETF (VYMI) and ALPS Sector Dividend Dogs ETF (SDOG)—are gaining traction for their ability to navigate dispersion [5].

The Case for High-Yield ETFs in 2025

The current macroeconomic backdrop favors high-yield ETFs. With global interest rates expected to remain “higher for longer,” the income generated by these funds becomes increasingly valuable. Historical data supports this: investors who allocated to high-yield bonds during the 5-7% yield-to-worst range have historically achieved annualized total returns of 5% or more over five years [1]. Moreover, the Federal Reserve’s cautious approach to rate cuts and the potential for corporate dealmaking to drive new issuance further bolster the case for high-yield exposure [3].

For those seeking to capitalize on this opportunity, a strategic allocation to high-yield ETFs—coupled with active management and diversification—can provide a robust income stream in a low-growth world.

**Source:[1] High Yield Outlook: Elevated Yields Endure into 2025, [https://www.morganstanley.com/im/en-us/financial-advisor/insights/articles/elevated-yields-endure-into-2025.html][2] 10 Best-Performing ETFs of 2025 | Investing - US News Money, [https://money.usnews.com/investing/articles/best-performing-etfs][3] High-Yield Corporate ETFs: Balancing Income Potential ..., [https://www.ainvest.com/news/high-yield-corporate-etfs-balancing-income-potential-risk-growth-world-2508/][4] High-Yield ETFs in Cooling Market: Proceed With Caution, [https://www.etf.com/sections/advisor-center/high-yield-dividend-etfs-market-risk-2025][5] Building Steady Streams: Dividend ETFs in Focus, [https://etftrends.com/building-steady-streams-dividend-etfs-in-focus/]