There’s long been an aura of exclusivity regarding private credit, equity, and hedge funds. It’s almost as though those asset classes have a country club feel. Everyone wants to get in, but there are considerable barriers to entry.
Fortunately, some ETFs have democratized access to assets that fit the bill as alternative income generators. The WisdomTree Alternative Income Fund (HYIN ) is part of that group. The fund debuted in May 2021 and follows the Gapstow Liquid Alternative Credit Index. That gauge comprises various listed alternative credit assets. Those include business development companies and closed-end funds big yields as well as REITs.
“The Gapstow Liquid Alternative Credit Index (GLACI) was developed by Gapstow Capital Partners, an expert in alternative credit with a successful ten-year track record as a credit allocator. The Index is designed to measure the performance of a portfolio of diversified, investable and liquid alternative credit exposures,” noted WisdomTree.
Indeed, HYIN makes good on the promise of income — alternative or otherwise. The ETF sports a 30-day SEC yield of 11.56%, according to issuer data. Alone, HYIN’s big yield could make the ETF a compelling alternative to traditional fixed income investments. But there’s more to the story.
HYIN Advantages
Cleary, HYIN is a high-yield fund. And high-yield assets often benefit when the Federal Reserve lowers interest rates. The central bank will likely do just that this month and into 2025. However, there’s more than just an interest rate case for this ETF. HYIN has other perks.
“Alternative credit may be used as a powerful tool to provide meaningful current yield or to serve as a complement to existing high yield bond exposures,” according to WisdomTree research. “BDCs, CEFs and REITs held in the portfolio are managed by well known, established firms that have historically provided high levels of income.”
The issue of quality matters because not all high-yield assets are cut from the same cloth. And that’s true in the world of alternative income. Many REITs carry substantial debt burdens. Their ability to collect and raise rent is essential in servicing that debt is vital when it comes to their dividends. Likewise, BDCs need to prove to investors they have stout rates of collection on the loans they make. Those are examples of the quality traits found among HYIN holdings.
Lowered Risk
HYIN holdings are equally weighted, which further diminishes the risk that just one or two components could hinder overall performance.
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