Weird Bond ETF Picks: First Trust High Yield Long/Short ETF (HYLS)
Bond ETF Yield: 5.63%
The ETF boom has helped regular retail investors use some pretty advanced tactics in the portfolios. One of them is the hedge fund trick of long/short. Basically, a long/short strategy involves selling — or shorting — one type of security, while going long another.
The First Trust High Yield Long/Short ETF (HYLS) takes a long position in junk bonds for current yield while actively shorting U.S. treasuries. The basic idea for this bond ETF is that the short treasury position allows HYLS to remove some of the interest rate risk from its underlying portfolio.
The result is that investors still get the high yield from junk bonds without having to fear capital deprecation from rising interest rates. The short position ends up reducing the overall duration of the HYLS portfolio. And as an actively managed ETF, HYLS has ability to move in and out of different bonds without being tied down to a set index. That should help produce a higher overall long-term return.
The bond ETF isn’t cheap — currently with an expense ratio of 1.19% — but with a yield of 5.63% and the rising rate protection built in, it could be a great satellite position in any fixed-income portfolio.