Principal Active High Yield ETF (YLD) seeks to provide high current income by actively investing in below-investment-grade corporate bonds, also known as junk bonds. This high-yield bond ETF targets companies with credit ratings below BBB-, offering higher dividend yields in exchange for increased default risk compared to investment-grade debt securities.
How It Works
YLD employs active portfolio management to select high-yield corporate bonds based on credit analysis and yield optimization rather than tracking a passive index. The fund's managers conduct fundamental research to identify undervalued bonds while managing credit risk through diversification across issuers, sectors, and maturity dates. Portfolio composition typically includes 100-200 bond holdings with regular rebalancing based on credit quality changes, market conditions, and yield opportunities to maintain the target income profile.
Key Features
- Active management allows for tactical positioning and credit selection rather than passive index replication of high-yield markets
- Attractive 5.94% dividend yield provides monthly income distributions significantly higher than investment-grade bond alternatives
- Zero expense ratio makes it cost-competitive while offering professional active management typically associated with higher fees
Risks
- This ETF can lose significant value if economic recession increases corporate defaults, as high-yield bonds are sensitive to credit deterioration and business cycles
- Rising interest rates cause bond prices to fall, with high-yield bonds experiencing amplified price volatility compared to government or investment-grade corporate bonds
- Active management risk means the fund may underperform passive high-yield bond indexes if manager security selection proves unsuccessful over time
Who Should Own This
Best suited for income-focused investors with medium-to-high risk tolerance seeking higher yields than investment-grade bonds provide. Appropriate as a satellite holding (5-15% of fixed-income allocation) for investors with 3+ year time horizons who can withstand credit-related volatility. Works well for retirees needing current income but willing to accept default risk for enhanced yield.