First Trust Tactical High Yield ETF (HYLS)

Overview

The First Trust Tactical High Yield ETF (HYLS) is an actively managed ETF that seeks to provide capital appreciation and current income. It focuses on investing in a diversified portfolio of high-yield corporate bonds, often referred to as 'junk bonds,' with a tactical approach to asset allocation and sector selection within the high-yield market.

Reputation and Reliability

First Trust is a well-established financial services company known for its diverse range of ETFs, including actively managed and index-based products. They have a significant presence in the ETF market and a reputation for offering innovative investment solutions.

Management Expertise

The ETF is managed by a team of experienced portfolio managers at First Trust Advisors L.P. Their expertise lies in credit research, fixed-income analysis, and tactical asset allocation strategies, aiming to navigate the complexities of the high-yield bond market.

Goal

To seek to achieve capital appreciation and current income by investing primarily in a diversified portfolio of high-yield corporate debt securities.

Investment Approach and Strategy

Strategy: This ETF is actively managed and does not track a specific index. The management team employs a tactical approach, making dynamic decisions about sector allocation, credit quality, and duration based on their assessment of market conditions and economic outlook.

Composition The ETF primarily holds below-investment-grade corporate bonds (high-yield bonds). It may also invest in other debt instruments, including but not limited to, government securities, investment-grade corporate bonds, mortgage-backed securities, and derivatives. The focus is on generating income and seeking capital appreciation.

Market Share: Information on the specific market share of HYLS within the high-yield ETF sector is not readily available as a precise percentage. However, it operates within a competitive segment of the fixed-income ETF market.

Total Net Assets (AUM): 3700000000

Key Competitors

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

Competitive Landscape

The high-yield ETF market is highly competitive, dominated by large, passive index-tracking ETFs. HYLS, as an actively managed fund, faces competition from both passive ETFs that offer broad exposure to the high-yield market at lower costs and other actively managed funds with different tactical approaches. Its advantages lie in its potential for dynamic risk management and opportunistic sector allocation, while disadvantages may include higher expense ratios compared to passive options and the inherent risks of active management underperformance.

Historical Performance: HYLS has demonstrated varied performance over different periods, reflecting the cyclical nature of the high-yield market. Its performance is influenced by interest rate changes, credit spreads, and overall economic conditions. Specific annualized returns for 1-year, 3-year, 5-year, and since inception periods would typically be available on the ETF provider's website or financial data platforms.

Benchmark Comparison: As an actively managed ETF, HYLS does not have a direct benchmark index that it aims to track. However, its performance is often evaluated against broader high-yield bond indices such as the Bloomberg U.S. High Yield Index to assess its relative success in generating alpha.

Expense Ratio: 0.5

Average Trading Volume

The average daily trading volume for HYLS is robust enough to generally ensure efficient execution for most investors.

Bid-Ask Spread

The bid-ask spread for HYLS is typically competitive, reflecting its moderate to high trading volume and the liquidity of its underlying assets.

Market Environment Factors

The performance of HYLS is significantly influenced by factors such as the Federal Reserve's monetary policy, inflation rates, economic growth forecasts, corporate default rates, and overall investor sentiment towards risk assets. Changes in credit spreads, which represent the difference in yield between high-yield bonds and government bonds, are critical.

Growth Trajectory

The growth trajectory of HYLS is tied to the broader high-yield market and investor demand for income-generating assets. Its tactical approach allows for adjustments in strategy and holdings to capitalize on perceived opportunities or mitigate risks, potentially leading to performance shifts over time.

Competitive Edge

HYLS's primary competitive edge stems from its active management strategy, which allows for tactical shifts in response to market conditions. The portfolio managers aim to exploit inefficiencies and identify undervalued securities within the high-yield universe. This flexibility, coupled with the issuer's experience, can potentially lead to outperformance compared to passive index funds in certain market environments.

Volatility

As an ETF focused on high-yield bonds, HYLS exhibits higher volatility compared to investment-grade fixed-income ETFs due to the increased credit risk of its underlying holdings.

Market Risk

Market risk for HYLS includes interest rate risk (bond prices fall as interest rates rise), credit risk (the risk that issuers will default on their debt obligations), liquidity risk (difficulty selling assets without impacting price), and economic risk (downturns affecting corporate profitability and default rates).

Ideal Investor Profile

The ideal investor for HYLS is an individual or institution seeking enhanced income and capital appreciation from high-yield corporate debt. They should have a higher risk tolerance and understand the inherent volatility and credit risks associated with 'junk bonds.'

Market Risk

HYLS is best suited for investors who are comfortable with moderate to high risk and are looking for an actively managed approach to gain exposure to the high-yield market. It may appeal to those seeking current income as well as potential capital gains, rather than purely passive index tracking.

The First Trust Tactical High Yield ETF (HYLS) is an actively managed fund targeting high-yield corporate debt for capital appreciation and income. Its strength lies in its tactical asset allocation strategy, managed by experienced professionals at First Trust. However, it carries higher volatility and credit risk compared to investment-grade bonds. HYLS is suitable for investors with a higher risk tolerance seeking active management in the high-yield space.

Data Sources:

• First Trust website
• Financial data providers (e.g., Morningstar, ETF.com)

Disclaimers:

This information is for educational purposes only and should not be considered investment advice. ETF performance can vary, and past performance is not indicative of future results. Investors should conduct their own due diligence or consult with a financial advisor before making investment decisions.