SRLN - HYBL: A High Yield Debt ETF Performing Well Relative To Peers

2023-11-15 05:32:31 ET

Summary

• SPDR Blackstone High Income ETF is an actively managed high-yield debt fund with a distribution yield of 7.67% and an expense ratio of 0.70%.
• The fund focuses on risk-adjusted total return and high current income, investing in high yield debt securities, including corporate bonds, senior loans, and collateralized loan obligations (CLOs).
• HYBL has performed well compared to its peers, but the historical data is too short to determine how it will manage the risks associated with its underlying asset classes.

Strategy & Portfolio

SPDR Blackstone High Income ETF (HYBL) is an actively managed high-yield debt fund with a distribution yield of 7.67% and an expense ratio of 0.70%. Distributions are paid monthly. This ETF has less than 2 years of existence: it was launched on 2/16/2022.

As described by SSGA in the prospectus, the fund is focused on " risk-adjusted total return and high current income ". It invests in high yield debt securities, including high yield corporate bonds, senior loans and debt tranches of U.S. collateralized loan obligations ("CLOs"). Collateralized loan obligations are usually issued by a trust and collateralized by loans that are often rated below investment grade. CLOs are capped at 15% of net assets at the time of investment. The fund intends to minimize risk using a top-down asset allocation combined with bottom-up security selection. The top-down asset allocation approach evaluates macroeconomic, technical, fundamental, and relative value factors to determine allocation weights among the asset classes. The bottom-up security selection relies on fundamental credit research. High yield bonds are selected based on a systematic, proprietary risk model that includes balance sheet data along with real-time data from the equity and option markets and a historical database of defaults. Senior loans and CLOs are selected by discretionary decisions favoring issuers with a leadership position in their respective markets, positive cash flow and proven management teams.

The next chart lists the top 10 industries by percentage in the fund's asset value.

About 70% of the portfolio value is invested in debt below BB rating.

About 48% of assets is in junk bonds and 40% in senior loans.

More than half of assets has a maturity between 2 and 5 years. The portfolio's average maturity is 5.08 years.

The portfolio has 525 constituents. The next table lists the top 10 holdings, which represent 9.3% of assets. The heaviest one is a senior loan ETF ( SRLN ).

Performance

The next chart compares HYBL total return since inception in February 2022 with a junk bond benchmark and a senior loan benchmark:

• iShares iBoxx $ High Yield Corporate Bond ETF ( HYG )
• Invesco Senior Loan ETF ( BKLN )

Both are passively managed ETFs tracking asset class indexes.

HYBL beats HYG by 3.8% and lags BKLN by 6% in total return. The actively managed fund would be shortly behind a 50/50 combination of the benchmarks. Nevertheless, the track record is too short to assess the strategy.

In price return (excluding distributions), HYBL has lost over 8%.

HYBL vs. Competitors

The next table compares characteristics of HYBL and five popular high-yield corporate debt ETFs:

• iShares Broad USD High Yield Corporate Bond ETF ( USHY )
• iShares 0-5 Year High Yield Corporate Bond ETF (SHYG)
• SPDR Portfolio High Yield Bond ETF ( SPHY )
• VanEck Fallen Angel High Yield Bond ETF ( ANGL )
• First Trust Tactical High Yield ETF ( HYLS )

HYBL has the highest yield, but it is also the smallest and less liquid fund of this group. Moreover, it has the second highest expense ratio.

It is the second best performer since inception regarding total return, close behind SHYG. It comes also in second position in 2023 to date, almost tie with the winner USHY.

Takeaway

HYBL has performed quite well relative to its peers in the last 18 months. It has 40% of assets in senior loans, whose benchmarks have outperformed junk bonds in this period. However, it is not exempt of the risks inherent to underlying assets classes. Data history is too short to tell how HYBL will manage these risks.

For further details see: