WisdomTree Launches Alternative Credit ETF

May 06, 2021

Today, WisdomTree rolled out an ETF that offers unique exposure. The WisdomTree Alternative Income Fund (HYIN) covers three buckets of alternatives via the Gapstow Liquid Alternative Credit Index (GLACI).

The new fund comes with a stunning expense ratio of 3.20%, but that’s actually within the normal range for ETFs that own vehicles like business development companies (BDCs), real estate investment trusts (REITs) and closed-end funds (CEFs). It lists on Cboe Global Markets.

“It provides you with a nice cross-representation of that overall publicly traded alternative credit market,” said Kevin Flannagan, WisdomTree’s head of fixed income strategy, noting that most funds only include exposure to one type of vehicle—solely REITs, BDCs or CEFs, rather than all three.

“We’re providing an enhanced yield instrument, which has been difficult to gain access to if you are not an institution or high net worth individual. But it also is providing a cushion from the bond market,” he added.

Flanagan notes that those three types of vehicles can be volatile individually, but including all three in one fund provides a smoother ride overall. He further points out that the correlations of HYIN’s underlying index with major benchmarks is rather low. Its correlation with the S&P 500 Index is just 0.65, and its correlation with the Bloomberg Barclays Aggregate Bond Index is slightly negative, -0.06.   

A WisdomTree white paper puts the current yield on HYIN's underlying index at 8.72% versus 1.45% for the S&P 500 or 1.59% for the Bloomberg Barclays Agg. Given the historically low interest rates we are now seeing, that's a level of yield that's hard to find. 

Methodology

HYIN is designed to provide exposure to alternative credit sectors, and its underlying index, GLACI, includes BDCs, CEFs and REITs—otherwise known as publicly traded alternative credit vehicles. Components must meet size and liquidity requirements, but also must have a relatively stable number of shares outstanding and invest primarily in high yield and other specific types of fixed income securities, among other requirements, according to the prospectus.

From there, the index classifies selected investment vehicles into six different alternative credit sectors: private corporate lending, public corporate debt, commercial real estate lending, agency real estate debt, nonagency real estate debt and multisector alternative credit. The fund selects securities meeting its eligibility requirements based on market capitalization for a total of 35 holdings, with rebalancing occurring quarterly and reconstitutions scheduled for every six months, the document says.

Contact Heather Bell at [email protected]

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