ETF Trends
ETF Trends
Heather Rupp, CFA, Director of Research for Peritus Asset Management, the sub-advisor to the AdvisorShares Peritus High Yield ETF (HYLD), analyzes duration in the high yield bond market.

It was hard to ignore the call in the fixed income space for “short duration” over the second half of the last year.  Duration is a measure of interest rate sensitivity (the percentage change in the price of a bond for a 100 basis point move in rates), so the lower the duration the less sensitive those bonds are to interest rate movements.

Lower duration bonds would not eliminate the interest rate impact, just lessen it.  We see this as a good strategy broadly speaking if you are talking the high yield asset class versus the investment grade asset class, with the high yield market naturally having a much lower duration.

However, we believe this strategy is lacking when it is used to parse out the high yield space itself, investing in only the lower duration names within the high yield category.

This gets back to the concept of yield.  In a box, this sounds like a good strategy, but you need to factor in the starting yield on the portfolio to mathematically assess if practically speaking this is the right strategy.

If you were to invest according to a “short duration” strategy in the high yield market, let’s hypothetically say you could achieve a portfolio with a duration of 2.15 years, so a 100 bps change in rates over 6mos would mean that the price of your portfolio would theoretically decline by 2.15%1.

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