AllianceBernstein Converts High Yield Mutual Fund to ETF

Investors are increasingly funneling money into exchange-traded products.

AllianceBernstein has converted a high-yield mutual fund into an exchange-traded fund, highlighting the continued popularity and tax advantages of the ETF wrapper. 

The AB High Yield ETF (HYFI) is an actively managed high yield bond ETF with a 0.4% expense ratio that will invest 80% of its assets in high yield or “junk” bonds, ones with a Ba1 or BB+ rating or lower, depending on the ratings agency.  

These bonds are riskier, because the companies have been deemed less creditworthy by the credit ratings agencies but offer higher yields to entice investors.  

"The AB High Yield ETF broadens our offerings for clients by ultimately supplying them with a flexible vehicle to weather various market conditions," global head of ETFs Noel Archard said in the release. "We remain focused on enhancing our ETF suite to meet our clients' ever-evolving needs.” 

The conversion of the AB High Yield Portfolio fund was accompanied by the conversions of two emerging market funds by Global X today as well. The transition to an ETF format will likely benefit the bond fund significantly, as ETFs do not release taxable distributions, something that is of particular importance to income-based funds. 

Stock ETFs have had net inflows while stock mutual funds have had net outflows every single year since 2015. However, bond funds have been a much more mixed bag until 2022, with traditional mutual funds and ETF seeing inflows, and the former sometimes exceeding the latter.  

In 2022 however, bond mutual funds saw enormous outflows topping $400 billion, while ETF inflows stayed similar to last year, at just under $200 billion. 

Junk bond funds allow investors to invest in assets that have less risk and return than stocks, but higher than investment-grade bonds. 

The investment vehicles were first brought to the attention of average investors by financier Michael Milken, who became famous first for his pioneering of junk bonds as investments and then for being convicted of multiple felonies for securities fraud.  

HYFI should highlight the benefits of ETFs, as the mutual fund version it was based on was rated average across all three of Morningstar pillars of process, people and parent, and its fees were somewhat below average, but in the second quintile.  

Contact Gabe Alpert at [email protected]