An actively managed high-yield, speculative grade bond exchange traded fund has held up remarkably well as interest rates rise. Bond investors should keep in mind that in a rising interest rate environment, various fixed-income assets will react differently.
The AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD) has gained 7.3% year-to-date while the SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK) is up 0.9% and iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) is 1.4% higher. [Actively Managed Junk Bond ETF Proves Durable as Rates Rise]
HYLD has been steadily gaining traction and now has over $300 million in assets under management. [High-Yield Bonds: Active ETF Bucks Outflow Trend]
“Certain sectors of the bond market react differently to rising rates,” according to Morningstar senior fund analyst Cara Esser. “For example, more-credit-sensitive bonds, like high-yield corporates, tend to react less negatively to rising rates than do bonds with more interest-rate risk, such as a U.S. Treasuries.”
In comparison, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) has declined 12.1% year-to-date.
HYLD has a 1.35% expense ratio, a 8.27% 30-day SEC yield and a 3.47 year duration – a low duration translates to a lower negative return if interest rates rise. The active ETF’s credit quality includes BB 3.7%, B 74% and CCC 19%. The fund leans toward riskier, but potentially more lucrative, debt securities.
JNK has a 0.40% expense ratio, a 5.77% 30-day SEC yield and a 4.44 year duration. Credit qualities include BBB or higher 0.7%, BB 36.3%, B 45.3% and CCC or lower 17.7%.