First Trust Advisors, a provider of more than 200 investment products, has launched the First Trust Short Duration High Income Fund.
The fund seeks to provide a high level of current income. As a secondary objective, the fund seeks capital appreciation.
In order to accomplish these goals, the fund uses a short-duration strategy designed to maximise income and limit interest-rate risk 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 and bank loans that are rated below-investment-grade or unrated.
High-yield debt securities are below-investment-grade securities, and are commonly known as “junk bonds.”
The fund may also invest in investment-grade debt securities and other debt instruments, such as convertible bonds and preferred stocks.
“Given the historically low interest rates in the present fixed-income market, investors have few options for earning attractive rates of return without incurring significant interest-rate risk,” says William Housey (pictured), senior vice president and senior portfolio manager at First Trust, which serves as one of the fund’s portfolio managers. “This fund provides the tactical ability to navigate the below-investment-grade credit markets, including the senior loan and high-yield bond markets, by seeking the best relative value opportunities within a given capital structure. Given our preference for senior loans in today’s market, this fund may provide investors who are searching for yield the opportunity to potentially enhance income while mitigating interest-rate risk and potentially even benefiting from future increases in interest rates.”
The combination of senior loans and high-yield bonds is expected to give the fund’s portfolio a blended duration of three years or less, which may provide high current income while limiting price volatility associated with changes to interest rates. By investing in high-yield securities with better credit quality, the fund’s portfolio managers attempt to limit potential defaults of portfolio investments.
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