The following are new investments that those saving for or living in retirement might consider for their portfolios. This week: Prudential's PGIM Active High Yield Bond ETF.
Prudential's PGIM Investments has launched the Prudential's PGIM Active High Yield Bond ETF(PHYL), its second exchange-traded fund. The fund, with a 0.53% expense ratio, will invest in junk bonds issued by U.S. and non-U.S. entities.
Despite rising domestic interest rates, demand for core and tactical bond ETFs has continued to grow, said said Alex Shepard, a founding partner with ETF Action. "The ETF wrapper first disrupted equity markets because it allows for greater tradability, transparency, tax efficiency, and typically lower fees for investors," he said. "Now we are seeing a migration in bond markets as well."
According to Shepard, PHYL appears to be Prudential PGIM Investments' way of entering the ETF market with a strategy they already employ in similar mutual funds. "For investors already using one of these mutual funds, depending on the tax consequences, a switch to PHYL may be appropriate," he said. "PHYL has a similar strategy and the same investment team for their high yield mutual fund."
Shepard noted that PHYL offers investors similar exposure but with intra-day tradability, lower fees, and day to day holdings transparency. Compared to iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and State Street's SPDR Bloomberg Barclays High Yield Bond ETF (JNK) which have $15 billion and $8 billion respectively, PHYL has a slightly higher expense ratio which is competitive, he said.
According to Shepard, the Prudential High Yield mutual fund (PHYZX) has comparable performance to these ETFs on the short-term and has outperformed on the long-term. From a yield perspective, PHYL has an indicated yield of 6.35% which is 40-50 basis points greater than HYG and JNK, he noted as well.
"Currently PHYL's managers appear to be getting the extra bump in yield from a slight decrease in credit quality in the underlying holdings compared to JNK," said Shepard. "The duration is slightly longer as well which opens investors up to more interest rate risk."
Ultimately, Shepard said, investors will have to decide if they feel comfortable paying up for Prudential's active management, or if they are satisfied with broad-based exposure through larger more liquid ETFs. "As always, investors should consider the tax considerations and the liquidity issues when buying recently launched ETFs," he said.
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