Seeking Alpha
Tom Lydon, ETF Trends (182 clicks)
ETF investing
Profile| Send Message| ()  

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 (HYLD) has gained 7.3% year-to-date, while the SPDR Barclays Capital High Yield Bond ETF (JNK) is up 0.9% and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is 1.4% higher.

HYLD has been steadily gaining traction and now has over $300 million in assets under management.

"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 (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%.

HYG has a 0.50% expense ratio, a 5.42% 30-day SEC yield and a 4.27-year duration. Credit breakdown includes BBB 5.4%, BB 42.4%, B 37% and CCC 11%. HYG tilts toward safer credit qualities, including some allocations toward BBB low investment grade debt.

AdvisorShares Peritus High Yield ETF

(click to enlarge)

Max Chen contributed to this article.

Full disclosure: Tom Lydon's clients own HYG and JNK.

Source: AdvisorShares Peritus Active Junk Bond ETF Bucks Trend, Sports 8% Yield