FT Portfolios Canada (First Trust), a privately owned company, has launched common and advisor class units of a short duration, high-yield bond ETF (FHY and FHY.A on the TSX).
The fund will primarily invest in a diversified portfolio of below investment grade debt securities, as rated by Moody’s Investor Services and Standard & Poors (or a similar rating by a designated rating organization, as defined in NI 81-102). Securities may also be unrated but considered to be of comparable credit quality to other below investment grade securities.
As well, the fund may invest in senior floating-rate loans, investment grade debt securities and convertible bonds. However, its aggregate exposure to senior floating-rate loans will be limited to 40% of its net asset value. The weighted average effective duration of the First Trust ETF’s portfolio securities may not exceed three years.
“Given the historically low interest rates in the present fixed-income market, investors have few options for earning attractive rates of return without incurring significant interest rate risk,” says William Housey, senior vice president and senior portfolio manager at First Trust Advisors.
But, he adds, “High-yield bonds and other fixed income asset classes exhibit a low correlation with traditional fixed income investments.”
“With a firming U.S. economy, improving corporate fundamentals and the [impending] end of the Fed[eral Reserve’s] bond purchase program…we expect higher interest rates in the future,” says Fraser Howell, CEO of FT Portfolios Canada. This fund, he notes, may help “investors lower their portfolio durations and maintain attractive yields.”