"3 Questions in 3 Minutes" on WisdomTree Alternative Income Fund

July 16, 2021

Kevin Flanagan, Head of Fixed Income Strategy at WisdomTree answers three questions about the WisdomTree Alternative Income Fund (HYIN): where can investors look for income, what is Alternative Credit, and where does Alternative Credit fit in a portfolio? 

Kevin Flanagan: Hey everybody, I'm Kevin Flanagan, Head of Fixed Income Strategy at WisdomTree Asset Management. Well, one of the challenges continuing to face investors is where to get income in the environment of historically low interest rates. Here in the U.S., you have the Federal Reserve with a zero interest rate policy. In other parts of the globe, you're seeing negative yields. Corporate bond spreads are usually viewed as an area to look for, for income are on the narrow end of ranges. And the stock market is at or near all-time highs, so investors are still searching for that solution.

And one of these solutions, in our opinion, is Alternative Credit. 

And you may ask yourself, "Well, what is alternative credit?" Well, it's based on debt and debt-based securities with a high risk-return profile. And typically speaking, institution or institutional investors, ultra-high net worth investors would look at private financial instruments, but there's also publicly traded alternative credit vehicles known as PACs that consists of business development companies, real estate investment trusts, known as REITs, as well as closed end funds.

And some of the examples there would be looking at public corporate debt, private sector lending, as well as commercial real estate lending. That's what makes up these PACs, these vehicles that I was just talking about.

So, how does alternative credit fit in a portfolio?

Well, at WisdomTree, we just recently launched the WisdomTree Alternative Income Fund, ticker HYIN. And that seeks to track the performance before fees and expenses of the Gapstow Liquid Alternative Credit Index, known as GLACI.

And within that environment, you can use HYIN as a potential compliment for your fixed income holdings, or you could also use it as a separate type of asset class using stocks and bonds. Traditionally, what you're thinking about, as well as the alternative credit part of the portfolio. We would view this type of a vehicle more as a strategic long-term type of holding in a portfolio and hopefully to provide the income. And what we would also note is that we've seen a modest to low correlation with the equity in the bond markets, and certainly with respect to interest rates.

 

 


 

Gapstow Liquid Alternative Credit Index (GLACI): an equal-weighted index that tracks the performance of 35 “Publicly Traded Alternative Credit Vehicles” (PACs) using an objective, rules-based methodology.

Spreads: Typically refers to a difference between a measure of yield for one asset class and a measure of yield for either a different subset of that asset class or a different asset class entirely.

Correlation: Statistical measure of how two sets of returns move in relation to each other. Correlation coefficients range from -1 to 1. A correlation of 1 means the two subjects of analysis move in lockstep with each other. A correlation of -1 means the two subjects of analysis have moved in exactly the opposite direction.

 

Kevin Flanagan is a registered representative of Foreside Fund Services, LLC.