One of the long-running hallmarks of the ETF industry is democratization of access to previously hard-to-reach asset classes. This includes private credit and equity and the broader alternative income space.
A growing number of ETFs bring alternative income to a broader swath of investors. One of the seasoned veterans in this category is the WisdomTree Alternative Income Fund (HYIN ), which turned four years old last month.
A key reason private credit, including in ETF form, is appealing to advisors and retail investors is a robust income proposition. HYIN follows the Gapstow Liquid Alternative Credit Index. The ETF lives up to that billing as highlighted by its tempting 30-day SEC yield of 11.79%. However, HYIN’s potential advantages extend beyond income. Arguably, access and diversification matter as much as income, if not more.
HYIN: Interesting Income Idea for These Times
One reason some investors are drawn to private equity is because companies, particularly those with the coveted “unicorn” label, are staying private longer. That diminishes access to publicly traded securities, including corporate bonds.
Staying private for extended periods of time can have advantages for some companies. But the result can somewhat constrain access to traditional capital-raising avenues. Some of the lenders residing in HYIN fill that void.
“We’ve also seen since 2007, there were tighter restrictions for banks and some of the lending practices that they had,” noted Morningstar’s Bryan Armour. “Over time with Dodd-Frank in 2010, we’ve seen these private credit issuers, the teams that were going out like Apollo or KKR, they’re going out originating some of this private credit, taking over some of that, part of the financial system and giving loans to businesses, to small businesses, to direct lending as well.”
Another benefit offered by HYIN is that it’s highly transparent. That’s a trait advisors and investors have come to expect of ETFs. But some of the newer private credit ETFs aren’t as transparent as market participants have come to expect. That makes it difficult for investors to evaluate the holdings that make these ETFs tick.
“It’s clear that at this point, transparency is an [issue. It’s something every] investor needs to be aware of and do their own due diligence,” added Armour.
Benchmark's Methodology Is Clear
That’s not a knock on newer rivals, nor does it mean HYIN is perfect. But the WisdomTree ETF is an index-based strategy that’s clear about the benchmark’s methodology and what the fund holds on a day-to-day basis.
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