As advisors, one of the more prominent themes in the world of exchange traded funds (ETFs) over the past several years has been the emergence of issuers previously synonymous with actively managed mutual funds as increasingly credible ETF players.
Expect a lot more of that by way of regulatory approvals that pave the way for issuers to launch ETF share classes of mutual funds. Prior to that, mutual fund issuers that wanted to bring those funds to the ETF wrapper had two choices: convert those mutual funds to ETFs or issue new ETFs that are essentially copycats of the old mutual fund.
Between those two options, there’s not necessarily a “wrong” choice. In fact, some new ETFs that are relatives of established mutual funds are making their marks. That includes the Capital Group High Yield Bond ETF (CGHY), which debuted in June.
To clear up any confusion, Capital Group is the company behind the American Funds series of mutual funds. The issuer’s mutual funds retain that branding while its ETFs, including CGHY, sport the Capital Group label.
CGHY Earning Accolades
Now the eleventh-largest U. S. ETF issuer, Capital Group has introduced new ETFs that are tied to old mutual funds with multiple examples of success. Indeed, CGHY is something of an ETF answer to the American High-Income Trust AHITX – an active mutual fund with long-running success.
That fund “follows a very similar strategy and has earned excellent returns in recent years following a strategy shift in late 2020 to focus on the midquality portion of the high-yield bond universe,” notes Morningstar analyst Zachary Evens. “The ETF focuses on the same section of the high-yield bond market and is run by some of the same managers, so investors in each vehicle should experience similar outcomes. ”
CGHY is just six months so passing judgment on the ETF isn’t relevant, but it deserves kudos for already cobbling together $53. 3 million in assets under management, confirming the advantages of Capital Group branding and ties to the aforementioned mutual fund.
“Capital Group has carefully waded into the ETF marketplace, launching several successful ETFs that follow similar strategies to proven mutual funds under their American Funds branding. This ETF stands a good chance at being the firm’s next success story,” adds Evens.
CGHY Has Makings of an Active ETF Winner
Beyond branding and a solid start on the assets accumulation front, CGHY has other tailwinds, namely expectations that active bond funds will continue being one of the fastest-growing ETF segments. Old school passive bond ETFs are fine and certainly check the box of low fees, but these days, advisors and clients are demanding more.
Add to that, not only does CGHY hail from an issuer advisors and clients know and trust, it delivers an impressive level of income. A 30-day SEC yield of 5. 40% with a duration of just 2. 9 years is impressive as is the fact that yield is delivered with just 6. 2% of the ETF’s holdings dwelling in CCC or worse territory.