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High-Yield Bond ETF Paying 8% Takes Active Approach


There has been a lot of speculation lately about whether the strong bull run in high-yield corporate bond ETFs is due for a steeper correction with yields sitting near all-time lows. Also, some ETF investors are wondering whether active management can provide a defensive edge versus an index-based approach.

“By simply buying a high yield index fund, an investor may end up with too much exposure to lower rated segments of the market. Active management allows for professional management and the ability to focus on certain segments of the market,” Schwab analysts wrote in a recent commentary. “For investors considering high-yield bond funds, we suggest that they find a fund that sticks with higher-rated high yield bonds, and limits exposure to lower-rated bonds.”

Peritus High Yield (HYLD) — expense ratio 1.35% — is an actively managed ETF strategy that debuted in December of 2010.

Two prominent high-yield corporate bond ETFs have seen considerable redemption (outflow) activity in recent sessions as corporate bond prices have come off of their recent highs.

SPDR Barclays High Yield Bond (JNK) — expense ratio 0.40% — and iShares iBoxx $ Liquid High Yield (HYG) — expense ratio 0.50% — have seen approximately $430 million and $150 million respectively leave the doors in recent trading days with both ETFs hugging their 50 day moving averages. The recent pullback in high-yield ETFs appears to have shaken out at least some of the “hot” money. [Junk Bond ETFs: Are 5% Yields Worth the Risk?]

This could be a sign of institutional investors whom have been sitting on nice gains in these products simply trimming exposures and taking profits and potentially re-allocating to other slices of the markets.

It will be interesting to see where the short term price action in high yield corporates takes us, and to see if there is additional selling pressure in these funds or if it tapers off at all.

Instead of following passive benchmarks designed to mirror the U.S. High Yield Corporate market, HYLD employs an actively managed approach that seeks the right mix of individual corporate bond issues and according to the issuer’s literature, “Peritus takes a value-based, active credit approach to the markets, largely foregoing new issue participation, favoring instead the secondary market where Peritus believes there is less competition and more opportunities for capital gains. Peritus de-emphasizes relative value in favor of long-term, absolute returns.”

HYLD has raised more than $188 million in assets under management, and stands as the second largest fund in total AUM issued by AdvisorShares.

Comparatively, yields of these funds look like the following: JNK 6.72%, HYG 6.55%, and HYLD 8.31%, so in an atmosphere of searching for yield amongst institutional investment managers, HYLD will likely continue to pop onto more radars.

Peritus High Yield ETF


For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.