The speculative-grade bond market is notoriously known for its illiquid nature. Consequently, fixed-income investors seeking to generate some extra yields through junk bond exchange traded funds may consider active options with managers monitoring the underlying market.
“Skilled active managers can generate higher and more persistent excess returns in illiquid asset classes, which are less efficiently priced,” according to Morningstar strategist Samuel Lee. “This is why I advocate active management for high-yield bonds, if you’re going to own them.”
For instance, the AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD) and First Trust Tactical High Yield ETF (NYSEArca: HYLS) are two actively managed high-yield ETF options investors can consider.
HYLD is sub-advised by Peritus Asset Management. Timothy Gramatovich, CIO of Peritus, and Ronald Heller, CEO & co-founder of Peritus, both manage the ETF.
The managers have shifted toward short-term securities and the ETF currently has a 2.53 year duration, compared to a 4.12 year duration in the Barclays U.S. High Yield Index. HYLD also offers a very attractive 9.51% 30-day SEC yield. However, the fund comes with a 1.18% net expense ratio.
HYLS, on the other hand, takes a long-short approach. Specifically, the active ETF takes a 130% long position and includes a short position of between 0% to 30% of the fund’s net assets in an attempt to manage potential risks. The fund has a net average effective duration of 2.96 years, a 6.03% 30-day SEC yield and a 0.95% expense ratio.