ETF Spotlight: Peritus High Yield

ETF Trends

ETF Spotlight on the AdvisorShares Peritus High Yield ETF (HYLD - News) , part of an ongoing series.

Assets : $87.1 million.

Objective : The Peritus High Yield ETF is an actively managed fund that tries to generate a high current income with a secondary goal of capital appreciation. The ETF will utilize high-yield debt securities that generate a high current income stream. [High-Yield Bond ETFs]

Holdings : Peritus de-emphasises relative value in favor of long-term, absolute returns. The fund has a relatively spread out allocation in speculative grade, high-yield, “junk” bonds. Top holdings as of 4/30/2012 include Harland Clarke holdings 4.4%, Air Canada 4.1%, United Refining 4.0%, CEDC Fin Corp Intl Inc 3.3% and SGS International Inc 3.3%.

What You Should Know :

  • AdvisorShares sponsors the fund, and Peritus I Asset Management sub-advises the portfolio.
  • HYLD has an expense ratio of 1.36%.
  • The fund has 38 holdings, including cash positions.
  • Sector allocations as of 4/29/2012 include: chemicals 5%, apparel 4%, leisure time 3%, healthcare services 10%, aerospace/defense 2%, retail 3%, household products/wares 3%, oil & gas 7%, healthcare products, computers 3%, electronics 2%, forest products & paper 3%, transportation 8%, misc. manufacturer 7%, telecom 3%, advertising 2%, airlines 4%, auto parts 3%, commercial services 3%, distribution/wholesale 3%, beverages 3% and food 8%.
  • S&P credit ratings include: BB- 3.5%, B+ 32.8%, B 40.3%, B- 15.2% and CCC+ 8.1%.
  • The ETF has an average coupon of 10% and an average duration of 3.2 years.
  • HYLD has a 30-day SEC yield of 9.95%.
  • The fund is up 1.8% over the past month, up 5.5% over the last three months and up 8.5% year-to-date.
  • The ETF is 1.5% above its 200-day exponential moving average. [An ETF Trend-Following Plan for All Seasons]
  • “Managers Tim Gramatovich, Ron Heller, and Dave Flaherty favor a deep-value, contrarian approach that blends both fundamental and market factors,” Monringstar analyst Samuel Lee said in a research note. “They argue that the junk bond market is inefficient in part thanks to the market’s slavish adherence to credit agency ratings.”
  • “Its strategy amplifies risk by focusing on a relatively small basket of securities that trade at steep discounts,” Lee added. “They employ the Buffettesque approach of looking at free cash flows and using conservative cash-flow projections to calculate a bond’s margin of safety.”

The Latest News :

  • In April, junk bonds gained 1.022%, bringing year-to-date returns to 6.224%, according to the Bank of America Merrill Lynch index, reports Michael Aneiro for Barron’s.
  • The average junk bond had a yield of 7.076%, or a 6.04% point spread over Treasuries.
  • However, lenders are producing more loans with less restrictions on borrowers, also known as covenant-life loans, to riskier firms, according to the Wall Street Journal.
  • About $11.5 billion covenant-life loans were issued in April, compared to $3.6 billion for the first quarter.
  • “It’s not yet unduly dangerous, but we’re moving in that direction,” Wilbur Ross of  WL Ross & Co. said in the WSJ.
  • “Investors are willing to do that because they are searching for yield in a yieldless environment,” Kevin Sherlock, head of loan and high-yield capital markets at Deutsche Bank AG, added in the report.

AdvisorShares Peritus High Yield ETF

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For past stories in this series, visit our ETF Spotlight category.

Max Chen contributed to this article.

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