First Trust, the Wheaton, Ill.-based fund provider known for its niche strategies, filed paperwork with U.S. regulators to market an actively managed high yield ETF that would join a crowded field of index junk bond funds, but only one active one—the AdvisorShares’ Peritus High Yield ETF (NYSEArca: HYLD).
The First Trust High Yield Fund would invest primarily in high yield debt securities—more commonly known as junk bonds—including senior and subordinated corporate debt, as well as senior floating-rate loans, as it strives to generate current income and capital appreciation.
The fund might also include other debt securities such as convertible bonds, preferred stocks, and derivatives, in a portfolio that won’t have any maturity restrictions. Indeed, it will own short-, medium- and long-term debt, and its holdings might include non-U.S. securities, the company said in the filing.
High yield funds have been all the rage lately as investors look for income at a time when 10-year U.S. Treasurys are yielding a meager 1.5 percent and official interest rates remain at all time lows since the Federal Reserve cut its benchmark federal funds rate to about zero in the wake of the market crash of 2008.
By contrast, AdvisorShares’ HYLD—the other actively managed ETF canvassing the space—is serving up an average yield to maturity of 11.3 percent. That performance stands out even when compared to other passive strategies in the space that include the likes of iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG) and the SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK).
HYG, which boasts $15.3 billion in assets, has a current average yield to maturity of 6.4 percent while the $11.9 billion JNK is serving up 7.3 percent.
HYLD’s outperformance of its passive counterparts adds fodder to the argument that high yield bonds are a good space for active management, as AdvisorShares’ Chief Executive Officer Noah Hamman told IndexUniverse in a recent interview.
Still, it’s worth noting that HYLD is relatively small compared to others in the space with only $106 million in assets.
Aside from the debt securities listed above, First Trust’s planned ETF might also invest up to 15 percent of its net assets in “illiquid securities,” the company said in the filing.
First Trust is the ninth largest ETF provider in the U.S. with more than $7.4 billion in assets under management, according IndexUniverse’s daily ETF League Table.
First Trust’s prospectus didn’t include a ticker or a fee for the planned ETF.
Contact Cinthia Murphy at [email protected]