Actively Managed Junk Bond ETF Proves Durable as Rates Rise

As a group, actively managed exchange traded funds are still a small sliver of the overall ETF universe. However, one area where active management has been successful is in the fixed income space. Whether it has been with emerging markets bonds or more conservative fare, some actively managed bond funds have thrived, including the Peritus High Yield ETF (NYSEArca: HYLD).

High-yield debt ETFs tracking bonds with shorter durations are being embraced by more investors that are concerned about both rising interest rates and generating income. HYLD obliges on both fronts as the fund has a 30-day SEC yield of 8.35% and a duration of 3.35 years. The Barclays U.S. High-Yield Index has a duration of 3.91 years. [Short Duration Junk Bond ETFs in Sweet Spot]

Although larger, passively managed junk bond ETFs such as the SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK) have reclaimed significant portions of their May/June losses, those funds have only recently started to see assets come back. As just one example, JNK has been impressive gatherer of assets this month, but since the start of June when interest rates started to rise, the fund has seen net outflows of almost $866 million, according to Index Universe data.

On the other hand, HYLD has seen net inflows since the start of June . Since the start of July, HYLD has attracted $7.74 million in new investments as Federal Reserve Chairman Ben Bernanke has comforted nervous investors by saying monetary policy will remain accommodating for the foreseeable future. [Junk Bond ETFs Thriving Again]

HYLD and other junk bond ETFs will again be put to the test this week with the Fed kicking-off a two-day meeting Tuesday. That is not the only issue facing these funds. While President Obama has said he will wait until the fall to announce Bernanke’s successor, if media reports are to be believed, it is a two-person race between Fed Vice Chair Janet Yellen and former Treasury Secretary Larry Summers.