First Trust is planning to launch an active “junk bond” exchange-traded fund, according to a filing made with the US Securities and Exchange Commission.
The primary objective of the First Trust High Yield Long/Short ETF is to provide current income with a secondary objective of capital appreciation.
According to the filing, the fund will look to achieve those aims by investing at least 80 per cent of its net assets (plus the amount of any borrowing for investment purposes) in high yield debt securities that are rated below investment grade at the time of purchase or unrated securities deemed by the fund’s adviser to be of comparable quality, commonly referred to as "junk" bonds.
These securities may include US and non-US corporate debt obligations, bank loans and convertible bonds, while First Trust will use lowest available rating available when determining whether a security is below investment grade.
The fund will employ a 130/30 strategy, maintaining 130 per cent of its assets in long positions and 30 per cent in short positions.