Since this mention, the ETF has rallied almost 9% and is flirting with multi-year highs which occurred in early May of this year.
HYLD, unlike peers iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) and SPDR Barclays High Yield Bond (NYSEArca: JNK) that follow passive indexes linked to the corporate bond market, is actively managed by Peritus Asset Management, a CA based firm.
The portfolio managers strive to “deliver a high current income with a secondary goal of capital appreciation” according to AdvisorShares’ website, whom is the ETF sponsor. The portfolio manager generally selects corporate bond issues from the secondary market, avoiding new issues. Also, the fund materials mention that “relative value is de-emphasized in favor of long term, absolute returns.”
Currently, top holdings in HYLD look nothing like top holdings in HYG and JNK, which perhaps provides the best compare and contrast of the two approaches, along with the major differences here in “active versus passive.” HYLD’s top weightings look like the following: Air Canada 144A 12% (3.99%), Harland Clarke Holdings 9.5% (3.81%), Merge Healthcare 11.75% (3.28%), Sgs Intl 12% (3.20%), and United Refining 10.5% (3.20%).
Not only are none of these holdings in the top five weightings in neither JNK nor HYG, but none of them are within the top ten holdings of either passive fund either. Similarly, investors should note that HYLD contains less securities than HYG and JNK, thus making it more subject to heavier weightings (concentration) in a given bond or bonds. None of this is inconsistent with active management nor the ultimate goals of active management, which are to provide value in terms of out-performance against a stated benchmark.
Year to date HYLD has fared rather well versus the competition in terms of total return with an 8.3% gain compared with 6.4% for JNK and 5.3% for HYG.
HYLD will celebrate its 2 year anniversary since inception in December of this year, so live returns are somewhat limiting when looking at how HYLD has fared against its peers since its launch. One thing is for sure however, the ETF is beginning to attract assets as it has more than $93 million currently invested in the fund, and this is an excellent sign not only for the fund, but for the viability of actively managed ETFs in general.
AdvisorShares Peritus High Yield
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Full disclosure: Tom Lydon’s clients own HYG and JNK.
Story updated to correct total-return performance for high-yield ETFs.