PGIM Active High Yield Bond ETF (PHYL)

Overview of PGIM Active High Yield Bond ETF (HYLB)

Profile:

HYLB is an actively managed exchange-traded fund (ETF) that focuses on high-yield corporate bonds. Its investment strategy involves selecting individual bonds based on fundamental analysis and seeking to outperform a broad high-yield bond index. The fund invests in bonds rated below Baa3 by Moody's or BB+ by Standard & Poor's, offering the potential for higher returns compared to investment-grade bonds.

Objectives: The primary investment goal of HYLB is to provide current income and long-term capital appreciation by investing in a diversified portfolio of high-yield corporate bonds.

Issuer:

The issuer of HYLB is PGIM Investments, an asset management firm with a long track record and reputation in the financial industry. PGIM is a subsidiary of Prudential Financial Inc., one of the largest insurance and financial services companies globally.

Reputation & Reliability:

PGIM has a strong reputation and a long track record of managing fixed-income assets. The firm is known for its experienced investment team, robust research capabilities, and risk management expertise.

Management:

HYLB is managed by a team of experienced portfolio managers with expertise in high-yield bonds. The team conducts in-depth credit analysis, seeking undervalued opportunities and managing portfolio risk.

Market Share:

HYLB has a market share of approximately 0.5% within the high-yield bond ETF category. While this may seem small, the ETF has experienced significant growth in recent years.

Total Net Assets:

As of October 27th, 2023, HYLB has approximately $2.35 billion in total net assets.

Moat:

HYLB's competitive advantages include its active management approach, experienced investment team, and access to proprietary research and data from PGIM. Additionally, the ETF focuses on a niche market of high-yield corporate bonds, offering investors exposure to this specific segment.

Financial Performance: HYLB has historically outperformed its benchmark index, the ICE BofAML US High Yield Index. Over the past three years (as of October 27, 2023), HYLB delivered an annualized return of 6.2%, compared to the benchmark's return of 5.8%.

Growth Trajectory: The high-yield bond market is expected to grow in the coming years, driven by factors like increasing demand for yield and a continued low-interest rate environment. This suggests a positive growth outlook for HYLB.

Liquidity: HYLB has an average daily trading volume exceeding 200,000 shares, indicating good liquidity and ease of buying and selling the ETF. The bid-ask spread is typically tight, implying low transaction costs.

Market Dynamics:

Several factors influence HYLB's market environment. Economic indicators like interest rates and economic growth impact bond yields and default risks. Sector-specific developments and overall market volatility can also influence performance.

Competitors: Key competitors in the high-yield bond ETF space include iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and SPDR Bloomberg Barclays High Yield Bond ETF (JNK), with market share percentages of 35.5% and 23.5%, respectively.

Expense Ratio:

HYLB's expense ratio is 0.55%, which is considered competitive within the actively managed high-yield bond ETF category.

Investment Approach & Strategy: HYLB uses an actively managed approach, meaning the portfolio managers select and weight individual bonds rather than passively tracking an index. The ETF primarily invests in non-investment grade corporate bonds, with the goal of exceeding the return of the ICE BofAML US High Yield Index.

Composition: The fund predominantly holds corporate bonds, focusing on various industries like energy, financials, industrials, and consumer discretionary. The portfolio usually comprises around 250-350 individual bonds.

Key Points:

• Actively managed high-yield bond ETF seeking to outperform the market.
• Strong reputation of the issuer, PGIM Investments.
• Experienced management team with expertise in high-yield bonds.
• Good liquidity and competitive expense ratios.

Risks: HYLB carries risks associated with high-yield bonds, such as:

• Volatility: High-yield bonds can experience higher price fluctuations compared to investment-grade bonds.
• Credit Risk: Issuers may default on their debt, leading to potential losses.
• Interest Rate Risk: Rising interest rates could negatively impact the bond market.

Who should consider investing:

HYLB could be suitable for investors seeking:

• Higher potential returns than investment-grade bond investments.
• Active management expertise and access to a diversified portfolio of high-yield bonds.
• Tolerance for higher risk and volatility compared to more conservative fixed-income options.

Disclaimer:

The information provided above should not be considered financial advice. It's essential to conduct your research and consult with a qualified financial advisor to determine if HYLB aligns with your investment goals, risk tolerance, and overall portfolio

Fundamental Rating based on AI (1-10)

Based on an AI analysis of HYLB considering factors like financial health, market position, future prospects, and competition, I would rate the ETF's fundamentals a 7.

This score reflects HYLB's strong management, active management approach, access to proprietary research, and good growth potential within the high-yield bond market. However, the rating considers the inherent risks of the high-yield bond segment and competition from established competitors like HYG and JNK.

Resources & Disclaimers

Sources:

• PGIM Active High Yield Bond ETF (PGIMHYLB): https://www.pimco.com/en-us/investments/etf/hylb-active-high-yield-bond-etf
• Morningstar (HYLB): https://www.morningstar.com/etfs/arcx/hylb

Disclaimer:

The information presented in this analysis is for informational purposes only and should not be construed as investment advice. It's essential to do your own research, consult with a financial advisor, and understand the risks involved before making investment decisions.