An actively managed high-yield, speculative grade bond exchange traded fund has held up remarkably well as interest rates rise. Bond investors should keep in mind that in a rising interest rate environment, various fixed-income assets will react differently.
The AdvisorShares Peritus High Yield ETF (HYLD) has gained 7.3% year-to-date while the SPDR Barclays Capital High Yield Bond ETF (JNK) is up 0.9% and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is 1.4% higher. [Actively Managed Junk Bond ETF Proves Durable as Rates Rise]
HYLD has been steadily gaining traction and now has over $300 million in assets under management. [High-Yield Bonds: Active ETF Bucks Outflow Trend]
“Certain sectors of the bond market react differently to rising rates,” according to Morningstar senior fund analyst Cara Esser. “For example, more-credit-sensitive bonds, like high-yield corporates, tend to react less negatively to rising rates than do bonds with more interest-rate risk, such as a U.S. Treasuries.”
In comparison, the iShares 20+ Year Treasury Bond ETF (TLT) has declined 12.1% year-to-date.
HYLD has a 1.35% expense ratio, a 8.27% 30-day SEC yield and a 3.47 year duration – a low duration translates to a lower negative return if interest rates rise. The active ETF’s credit quality includes BB 3.7%, B 74% and CCC 19%. The fund leans toward riskier, but potentially more lucrative, debt securities.
JNK has a 0.40% expense ratio, a 5.77% 30-day SEC yield and a 4.44 year duration. Credit qualities include BBB or higher 0.7%, BB 36.3%, B 45.3% and CCC or lower 17.7%.
HYG has a 0.50% expense ratio, a 5.42% 30-day SEC yield and a 4.27 year duration. Credit breakdown includes BBB 5.4%, BB 42.4%, B 37% and CCC 11%. HYG tilts toward safer credit qualities, including some allocations toward BBB low investment grade debt.
AdvisorShares Peritus High Yield ETF
For more information on high-yield funds, visit our high-yield bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own HYG and JNK.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.