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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 (NASDAQ: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.

Moreover, the fund could enhance returns through "carry trade" where borrowed securities are sold and the short seller profits by using the proceeds to buy a security with a higher interest rate.

The current environment favors high-yield debt because slow economic growth has historically supported high-yield bonds, healthy corporate credit environment and loan defaults are at historical lows, First Trust said.

Investors may see more similar offerings in the weeks ahead. The ProShares High Yield Interest Rate Hedged ETF is waiting on regulatory approval and the launch of the Market Vectors U.S. Treasury-Hedged High Yield Bond Index ETF (NYSEARCA:THHY) has been recently delayed, reports Brendan Conway for Barron's.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: First Trust Launches Active High-Yield ETF