This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

High-Yield Bond ETFs That Limit Losses

Stocks in this article: JNKHYGTHHYHYLSHYHG

When rates fall, bond prices tend to rise. That would hurt the value of the short positions held by the hedged fund. In a period of flat rates, the short positions would not provide any capital gains or losses. But selling short imposes costs because of brokerage commissions and other expenses. Those costs, which can range from less than 0.10% to 1%, are subtracted from total returns.

Although the ProShares and Market Vectors funds track benchmarks and always sell short, First Trust High Yield Long/Short has some room to maneuver because it is actively managed. First Trust portfolio manager William Housey currently has 25% of his assets in short Treasury positions. But if conditions warrant, he is free to reduce the short positions or remove them altogether.

Housey favors companies with relatively steady cash flows. Worried about erratic markets, he has been underweighting the lowest-quality bonds, which are rated CCC. "We have ended up with a little higher credit quality than you see in some of the passive funds," he says.

Worried that rates will continue rising, Housey has put 15% of his portfolio in floating-rate senior loans. The loans are made to companies that are rated below-investment grade. When rates climb, the interest payments on the loans adjust upwards. Because of their adjustable rates, the loans have proved resilient this year. "The loans have been the best-performing fixed-income class lately," says Housey.

Although Housey has been shorting Treasury bonds, he has not been shorting high-yield bonds. He says that he only shorts high-yield bonds during periods when defaults are rising. At the moment, default rates are low, and corporate balance sheets are solid. "Cash flows are relatively steady, and businesses are performing quite well," he says.

At the time of publication, Luxenberg had no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs