Junk No More: Actively Managed ETFs for High-Yield Bonds | ETF Trends

There are many asset classes where active management is advantageous for investors. A strong case can be made for high-yield bonds.

On that note, the Invesco High Yield Bond Factor ETF (NASDAQ: IHYF) could prove to be a well-timed addition to the world of actively managed exchange traded funds. IHYF debuted on Thursday.

“The Invesco High Yield Bond Factor ETF (Fund) is an actively managed exchange-traded fund (ETF) that seeks total return by investing, at least 80% of its net assets  in high-yield, below-investment grade, fixed-income securities, and in derivatives and other instruments that have economic characteristics similar to such securities,” according to Invesco.

With yields on U.S. government debt depressed and likely to remain that way for several years, advisors are looking to other corners of the bond market to source income. Some will embrace high-yield corporate debt and the relevant exchange traded funds.

Active Management Can Turn the Junk Bond Moniker Around

Junk bonds and the related exchange traded funds are usually more volatile than their investment-grade and U.S. government debt counterparts, but with the right strategies, investors can turn that to their benefit over the long-term.

“High-yield bond portfolios concentrate on lower-quality bonds, which are riskier than those of higher- quality companies,” according to Morningstar. “These portfolios generally offer higher yields than other types of portfolios, but they are also more vulnerable to economic and credit risk. These portfolios primarily invest in U.S. high-income debt securities where at least 65% or more of bond assets are not rated or are rated by a major agency such as Standard & Poor’s or Moody’s at the level of BB (considered speculative for taxable bonds) and below.”

IHYF has 196 holdings. Consumer discretionary and communication services names combine for over 28% of the new ETF’s roster.

Investors looking for long-term exposure to high-yield corporate bonds may want to consider IHYF because active management can smooth out some of the bumps that frequently arise with this asset class.

The new ETF charges 0.39% per year, or $39 on a $10,000 investment. That’s extremely competitive among actively managed high-yield corporate bond funds.

For more on active strategies, visit our Active ETFs Channel.

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.