ETF Spotlight on the AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD), part of an ongoing series.

Assets: $87.1 million.

Objective: The Peritus High Yield ETF is an actively managed fund that tries to generate a high current income with a secondary goal of capital appreciation. The ETF will utilize high-yield debt securities that generate a high current income stream. [High-Yield Bond ETFs]

Holdings: Peritus de-emphasises relative value in favor of long-term, absolute returns. The fund has a relatively spread out allocation in speculative grade, high-yield, “junk” bonds. Top holdings as of 4/30/2012 include Harland Clarke holdings 4.4%, Air Canada 4.1%, United Refining 4.0%, CEDC Fin Corp Intl Inc 3.3% and SGS International Inc 3.3%.

What You Should Know:

  • AdvisorShares sponsors the fund, and Peritus I Asset Management sub-advises the portfolio.
  • HYLD has an expense ratio of 1.36%.
  • The fund has 38 holdings, including cash positions.
  • Sector allocations as of 4/29/2012 include: chemicals 5%, apparel 4%, leisure time 3%, healthcare services 10%, aerospace/defense 2%, retail 3%, household products/wares 3%, oil & gas 7%, healthcare products, computers 3%, electronics 2%, forest products & paper 3%, transportation 8%, misc. manufacturer 7%, telecom 3%, advertising 2%, airlines 4%, auto parts 3%, commercial services 3%, distribution/wholesale 3%, beverages 3% and food 8%.
  • S&P credit ratings include: BB- 3.5%, B+ 32.8%, B 40.3%, B- 15.2% and CCC+ 8.1%.
  • The ETF has an average coupon of 10% and an average duration of 3.2 years.
  • HYLD has a 30-day SEC yield of 9.95%.
  • The fund is up 1.8% over the past month, up 5.5% over the last three months and up 8.5% year-to-date.
  • The ETF is 1.5% above its 200-day exponential moving average. [An ETF Trend-Following Plan for All Seasons]
  • “Managers Tim Gramatovich, Ron Heller, and Dave Flaherty favor a deep-value, contrarian approach that blends both fundamental and market factors,” Monringstar analyst Samuel Lee said in a research note. “They argue that the junk bond market is inefficient in part thanks to the market’s slavish adherence to credit agency ratings.”
  • “Its strategy amplifies risk by focusing on a relatively small basket of securities that trade at steep discounts,” Lee added. “They employ the Buffettesque approach of looking at free cash flows and using conservative cash-flow projections to calculate a bond’s margin of safety.”

The Latest News:

  • In April, junk bonds gained 1.022%, bringing year-to-date returns to 6.224%, according to the Bank of America Merrill Lynch index, reports Michael Aneiro for Barron’s.
  • The average junk bond had a yield of 7.076%, or a 6.04% point spread over Treasuries.
  • However, lenders are producing more loans with less restrictions on borrowers, also known as covenant-life loans, to riskier firms, according to the Wall Street Journal.
  • About $11.5 billion covenant-life loans were issued in April, compared to $3.6 billion for the first quarter.
  • “It’s not yet unduly dangerous, but we’re moving in that direction,” Wilbur Ross of  WL Ross & Co. said in the WSJ.
  • “Investors are willing to do that because they are searching for yield in a yieldless environment,” Kevin Sherlock, head of loan and high-yield capital markets at Deutsche Bank AG, added in the report.

AdvisorShares Peritus High Yield ETF

For past stories in this series, visit our ETF Spotlight category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.