BNY Mellon High Yield Beta ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Silver. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in corporate bonds and BB rated bonds compared with category peers. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

BNY Mellon High Yield Beta ETF earns an Above Average Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. The most significant contributor to the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. 

The investment strategy as stated in the fund's prospectus is: 

The investment seeks to track the performance of the Bloomberg US Corporate High Yield Total Return Index.  The fund uses a rules-based, systematic investment strategy that seeks to track an index designed to measure the performance of the high yield bond market. To pursue its goal, the fund normally invests substantially all, but at least 80%, of its assets in bonds comprising the Bloomberg US Corporate High Yield Total Return Index. The Bloomberg US Corporate High Yield Total Return Index is designed to measure the U.S. dollar-denominated, high yield (junk), fixed-rate, and taxable corporate bond market. It is non-diversified.  

 This strategy's 12-month yield is 8.7%, higher than its average peer's 6.3%. Plus, its 30-day SEC yield (a standardized, point-in-time estimate of the fund’s future income return) sits at 7.7%. Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated B. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 3.2-year duration, is expected to gain 3.2% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

Above Average

Process

BNY Mellon’s team earns An Average People Pillar rating. The main contributor to the rating is its parent firm's five-year success ratio of 57%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. A low cost, with fees that rank in its category's cheapest 20%, also improves the rating. Fees detract from net returns, so the managers have a lower expense hurdle to overcome.

Average

People

BNY Mellon Investment Management, the asset-management arm of financial conglomerate Bank of New York Mellon, has been busy with changes since CEO Hanneke Smits ascended to her seat in October 2020. The firm’s seven wholly owned but autonomous investment affiliates mostly focus on distinct asset classes. Smits streamlined this arrangement in February 2021 by consolidating most of BNYIM’s active fixed-income and equity capabilities into two affiliates, Insight and Newton, respectively, and by trimming overlapping investment teams; further, the firm sold private-credit-focused Alcentra to Franklin Templeton in May 2022 partially because of that boutique’s operational complexity. Smits believes these organizational changes should help BNYIM’s affiliates manage their strategies more effectively. Yet the firm’s broad strategy lineup remains bloated owing in part to the affiliates’ openness to customized client requests regardless of asset size. 

Smits has sought to improve collaboration across the firm’s investment teams, including by pushing affiliate CEOs to replace “star managers” with comanagers on most strategies. This is a noteworthy effort, but it led to the departure of some managers who didn’t want to partake in the new model. Amid the uncertainty of how these and other changes ultimately shake out, the firm retains its Average Parent rating.

Parent

BNY Mellon High Yield Beta ETF

BKHY tracks a market value-weighted index of USD-denominated high yield corporate bonds with broad maturities.

BNY Mellon High Yield Beta ETF offers an opportunity to invest in corporate credit while limiting exposure to overpriced and vulnerable bonds. BKHY's unique approach to investing, straddling the line between passive and active management, sets it apart from other high-yield bond ETFs. BKHY has outperformed the well-established SPDR® Bloomberg High Yield Bond ETF and offers high yield and diversification, but also carries high risk and interest rate sensitivity.

BKHY: Screening Out Overpriced Credit Risk

BKHY is a relatively new junk bond ETF that started in April 2020. It has managed to outperform the big kahuna in the space, SPDR® Bloomberg High Yield Bond ETF over the last 3 years. We examine whether this high-yield portfolio with a 7.22% yield makes sense for your portfolio.

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