New Junk Bond ETF Planned

A recent filing from Prudential Investment Management outlines plans for the insurance giant’s next ETF. The PGIM Active High Yield Bond ETF is slated to list on the NYSE Arca, and like Prudential’s only existing ETF, will be actively managed.

The fund will target junk bonds issued by both corporations and governments, including those that are in bankruptcy or default. There are some limitations on the fund’s investment approach, such as a limit on derivatives set at 25% of the fund’s net assets, and a 20% cap on issues denominated in foreign currencies, according to the prospectus.

In terms of management, the fund will use both top-down economic analysis that looks at global macro conditions and bottom-up research that considers the rating and outlook for individual bond issuers. The filing further notes that portfolio managers will also rely on quantitative models and risk management systems, and that the fund can look at a wide variety of investment factors. Ultimately, the fund is not required to invest in a bond purely based on yield but it can also take into account the expected total return, the prospectus says.

PGIM has gotten its feet wet with the launch of the PGIM Ultra Short Bond ETF (PULS) in April. The fund now has $35 million in assets under management. The high-yield-debt space is a popular target for actively managed ETFs, with 12 funds competing in that category.

Contact Heather Bell at [email protected]