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
Max Chen contributed to this article.
Full disclosure: Tom Lydon's clients own HYG and JNK.