European high yield is not for passive investing

Passive high yield investing is not the same as passive equity investing. High yield indices cannot be directly replicated. This means passive ETFs are forced to lend indiscriminately to a subset of larger issuers which, by definition, also have the largest debt outstanding. This “sampling” of an index can result in unwanted exposures: to overvalued bonds; to risky issuers, entire sectors that may be facing challenges; and to undesired ESG risks says Neuberger Berman.