We highlighted rising trading volumes and subsequent creation and redemption activity in a number of fixed income exchange traded funds yesterday, and we stay on point today in the fixed income space but focus on an actively managed ETF that is rather unique in its class.
Peritus High Yield (NYSEArca: HYLD) is an actively managed strategy in which the ETF fund managers select high yield debt issues that they believe will deliver a high current income stream. [ETF Pairs High Yield, Active Management]
The strategy, according to the AdvisorShares ETFs website, also incorporates a “value-based, active credit approach” and “de-emphasizes relative value in favor of long-term, absolute returns.”
The iShares High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK) are the two giants in the corporate high yield ETF space at the moment in terms of assets under management (collectively the two funds hold about $15 billion in assets under management). [High-Yield ETFs]
HYLD though holds the distinction of being the only actively managed ETF in the corporate bond camp, and since inception, the managers have more than delivered on their value proposition compared to passively managed peers. HYLD is down 2.83% year to date versus JNK down 4.66% and HYG losing 4.87%.
How do the managers at Peritus differentiate themselves from their index benchmarks in terms of their security selection? Currently, the top 5 holdings in HYLD are corporate bond issues from SGS International (4.89% weighting), United Refining (4.74%), Harland Clarke Holdings (4.49%), Cedc Financial Corp. (4.15%), and Air Canada (3.85%).
Comparatively, HYG and JNK share four of the same holdings within their top six holdings (corporate debt from CIT Group, Lyondell Chemical, First Data, and Intelsat Bermuda), and note that HYLD does not own any of these issues at all within the current portfolio.
So for those advisors and portfolio managers looking to differentiate themselves in the fixed income ETF space through active security selection, HYLD may present a compelling alternative.
Peritus High Yield
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