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Infrastructure Capital Bond Income ETF Seeks To Provide High Yield With Stock Returns

News provided by news direct2025-02-11

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By Meg Flippin Benzinga

The world can be a challenging place for investors, with the prospects of trade wars, tariffs and geopolitical unrest looming large. Investors have the added problem of trying to find a place to hide out and make money in an environment where the Federal Reserve is cutting interest rates or keeping them on hold.

Meanwhile, according to Wall Street firm AllianceBernstein, high-yield bonds tend to perform similarly to equities, giving investors the capital appreciation without all the risk. Because they are issued by companies in growth mode and in need of capital, they tend to perform like equities.

Consider the Bloomberg U.S. High Yield Index as one example. According to AllianceBernstein, since the launch of the Bloomberg U.S. High Yield Index in 1998, the returns have been similar to the gains of equities based on the S&P 500. Plus, the Wall Street investment firm points out that while high-yield bonds often get a bum rap, sometimes referred to as junk bonds, over the past 30 years only 3% on average have defaulted. Defaults during the past five years have been less than 2%. Let’s not forget high-yield debt has historically outperformed other areas of the bond market.

Actively Managing High Yield

When it comes to high-yield bonds, not all are created equal, which is why actively managed high-yield bond ETFs may appeal to some investors. That is often true in the current environment, where uncertainty reigns supreme. High yield comes with a degree of risk, and if macroeconomic turmoil breaks out, having a money manager at the ready to make changes can mean the difference between gains and losses in the portfolio.

It’s a big reason Infrastructure Capital designed its new Infrastructure Capital Bond Income ETF (BNDS)as an actively managed high-yield ETF. The fund says it wants to maximize current income and pursue strategic opportunities for capital appreciation, investing at least 80% of its total assets in fixed-income securities, largely focusing on corporate bonds. The ETF will also include muni and government bonds in its portfolio. Meanwhile, up to 20% of the fund’s net asset may also be invested in equities, although the fund is focused largely on corporate debt.

The fund is run by Infrastructure Capital Founder, CEO and portfolio manager Jay D. Hatfield and portfolio manager Andrew Meleney. Together they have over thirty years of experience in the securities and investment markets. They have a top-down management approach to the fund, making investment decisions based on a bevy of global macroeconomic factors, including inflation, global interest rates, unemployment, commodity prices, monetary policy and economic growth. If the fund managers believe commodity prices are poised to increase, they may seek to purchase bonds of companies that have commodity exposure. The same nimbleness isn’t true of passively managed ETFs.

The money managers report they are also big proponents of leveraging preferred shares to boost yield and limit risk. The fund is diversified across several industries including financials, REITS, utilities and technology, which can provide added protection.

Investors Get Quantitative And Qualitative Analysis

The fund managers say they rely on a combination of quantitative and qualitative factors when selecting investments for the ETF, emphasizing those fixed-income securities that are trading at a discount and/or offer a total return opportunity. The goal is to provide income and total return. The enterprise value, capital ratio, operating metrics and other key financial data are also built into the selection process, with the aim to purchase bonds at a fire sale that have a big potential to increase.

When selecting bonds, the company says fund managers look for companies that have a strong competitive position, earn a high return on capital, have stable and reliable profits and are exhibiting the ability to generate cash in excess of growth needs. Some of the bond holdings in the ETF that Infrastructure Capital says check off those boxes are Land O’ Lakes, Global Net Lease Inc. (NYSE: GNL) and Plains All American Pipeline LP (NASDAQ: PAA). The Ishares Trust-Ishares iboxx $ High Yield Corporate Bond ETF and the SPDR Bloomberg High Yield Bond ETF are the ETF’s top two holdings, accounting for over 4% of the fund each.

Stable, steady and secure are among the attributes many income investors are seeking, and high yield may provide that sometimes. But not every high yield bond is the same. Some will make money, while others will crash and burn. Determining the winners and losers takes expertise, experience and insight, something Infrastructure Capital strives to bring to the table with its newly launched, actively managed, high-yield ETF. To learn more about their latest ETF, click here.

Featured photo byAustin Distel onUnsplash.

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