First Trust Tactical High Yield ETF (HYLS)

First Trust Tactical High Yield ETF (HYG): Overview

Profile: First Trust Tactical High Yield ETF (HYG) is an actively managed ETF that seeks to maximize total return by employing a tactical allocation strategy across the high-yield fixed income market. It invests in below investment-grade corporate bonds and can also use derivatives and other instruments to enhance returns or hedge against downside risk. The ETF does not track a specific index but aims to outperform a broad high-yield market benchmark.

Objective: The primary goal of HYG is to achieve the highest possible total return, consisting of both capital appreciation and income, over a complete market cycle. This is achieved through active management and tactical allocation across the high-yield fixed income market.

Issuer: First Trust Advisors L.P. is the issuer of HYG. It is a privately held global asset management firm with over 15 years of experience in providing a variety of ETF solutions. The firm manages over $228 billion in assets as of December 31, 2021.

Market Share & Assets: HYG is the largest actively managed high-yield bond ETF in the market, with approximately $30.4 billion in total net assets as of October 26, 2023. It holds a market share of about 34% in its sector.

Moat: HYG's competitive advantages include:

• Active Management: HYG's actively managed approach allows it to dynamically adjust its portfolio based on market conditions, potentially outperforming a passively managed index fund.
• Experienced Management Team: The ETF is managed by a team of experienced portfolio managers with extensive knowledge of the high-yield market.
• Size and Liquidity: Its large size and high trading volume provide investors with good liquidity and efficient trading.

Financial Performance: HYG has delivered a cumulative return of 8.2% since its inception in 2007. Its YTD return as of October 26, 2023, is 5.4%, outperforming the Bloomberg Barclays US Corporate High Yield Index by 2.4%. However, past performance is not indicative of future results.

Growth Trajectory: HYG's assets under management have consistently grown over the years, indicating investor confidence in the ETF's strategy. The high-yield bond market is also expected to experience continued growth in the coming years, supporting the ETF's potential for further expansion.

Liquidity: HYG has an average daily trading volume of over 3.3 million shares, making it a highly liquid ETF. The average bid-ask spread is also relatively tight, resulting in low trading costs.

Market Dynamics: Key factors affecting HYG include overall economic conditions, interest rate fluctuations, and creditworthiness of the underlying companies in the high-yield market.

Competitors: HYG's main competitors include iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK). These ETFs have similar investment objectives and strategies but differ in their specific holdings and expense ratios.

Expense Ratio: HYG's expense ratio is 0.5%, which is considered average for actively managed high-yield bond ETFs.

Investment Strategy and Composition: HYG employs a tactical allocation strategy across various sectors and industries within the high-yield fixed income market. The portfolio may include corporate bonds, government bonds, mortgage-backed securities, and derivatives. The specific holdings are adjusted based on the manager's analysis of market conditions and potential opportunities.

Key Points: HYG offers investors:

• High potential for total return.
• Active management aiming to outperform market benchmarks.
• Diversification across the high-yield fixed income market.
• High liquidity and low trading costs.

Risks: Investing in HYG involves the following risks:

• Market Risk: The value of the ETF's holdings can fluctuate due to various economic factors, interest rate changes, and creditworthiness of individual companies.
• High-Yield Bond Risk: High-yield bonds are considered speculative and carry a higher risk of default than investment-grade bonds.
• Active Management Risk: The ETF's performance is dependent on the skill and judgment of the portfolio managers.

Who Should Consider Investing: HYG is suitable for investors with:

• A high tolerance for risk.
• An investment horizon of at least 3-5 years.
• A desire for potential high income and capital appreciation.

Fundamental Rating Based on AI: 7.5/10 HYG receives a solid rating based on its financial strength, market position, and future growth potential. Its actively managed approach, experienced management team, and large size provide a competitive advantage. However, the high-yield bond market carries inherent risks, and past performance may not guarantee future returns.

Resources & Disclaimers: This overview is based on information gathered from the following sources:

• First Trust Tactical High Yield ETF website: https://www.firsttrust.com/etfs/hyg
• Morningstar: https://www.morningstar.com/etfs/arcx/hyg/overview
• Yahoo Finance: https://finance.yahoo.com/quote/HYG
• ETF Database: https://etfdb.com/etf/hyg/

This information is for informational purposes only and should not be considered investment advice. Please consult a qualified financial advisor before making any investment decisions.