While still small compared to beta indexing, the number of actively managed exchange traded funds is growing, with First Trust launching a long/short high-yield debt ETF Thursday.
The First Trust High Yield Long/Short ETF (NasdaqGM: HYLS) is an actively managed ETF that tries to provide current income through a diversified portfolio of high-yield debt securities rated below investment grade or unrated while capital appreciation is a secondary objective. HYLS has a 1.19% expense ratio.
The active ETF will hold U.S. and non-U.S. corporate debt, bank loans and convertible bonds, with both long and short positions. Additionally, the fund can take short positions in U.S. Treasuries or investment grade corporate debt.
“This long/short strategy is designed to capitalize on investment opportunities through various market cycles,” according to the note.
For instance, the company states that the long/short strategy serves as an alternative to hedge against interest rate movements as it would help minimize the hit from a sudden interest rate increase.
“At a time when investors are growing concerned about the potential fallout from increasing interest rates on their fixed income portfolios, First Trust is offering investors the opportunity to potentially capitalize on the strength of the high-yield bond market and U.S. corporate credit fundamentals while mitigating a portion of the interest-rate risk,” William Housey, CFA, Senior Vice President and Senior Portfolio Manager at First Trust, said in a press release.