Lazard's hybrid ETF can own bonds that may be written to zero, and its non-dollar fund can own junk

Lazard Asset Management listed its first fixed-income ETFs on Monday, Nov. 9. Its new hybrid fund can own bonds that may be written to zero, and its new non-dollar fund can own junk without limit.

The firm put three actively managed funds on NYSE Arca: the Lazard US High Yield ETF, HYB, the Lazard Hybrid Financial Income ETF, HYFY, and the Lazard Non-Dollar Active Income ETF, XDLR. Lazard said the launch takes its U.S. lineup to 10 funds and more than $2 billion, from a platform that opened in April 2025.

Lazard says HYB converted from the Lazard US High Yield Portfolio, a mutual fund launched in 1995, and that the ETF is expected to adopt that record. The new strategies are HYFY and XDLR.

Lazard Hybrid Financial Income ETF

HYFY must keep at least 80% of its net assets in hybrid securities of financial companies, its Sept. 15 prospectus says. Those hybrids include preferred securities, contingent convertibles, capital securities and subordinated debt. The fund is non-diversified, so it may put a large share of its money in a few issuers.

The fee is 0.60%. The prospectus fee table shows no waiver.

J.P. Morgan's JPMorgan Preferred and Income Securities ETF, JPRF, invests in preferreds and contingent convertibles. Its Sept. 30 fact sheet showed $2.23 billion.

The Nov. 1 prospectus puts the fee at 0.55% after a waiver, against 0.61% before it, through Oct. 31, 2029. HYFY costs 5 basis points more than that net fee.

JPRF must keep at least 25% of its assets in financials, and at least 80% in preferred securities, income-paying debt, or both. HYFY must keep at least 80% in hybrids issued by financial companies.

"Investors can earn materially more from the same highly rated financial issuers by moving down the capital structure," François Lavier, who leads the fund with Alexis Lautrette, said in Monday's release.

The prospectus says what that extra yield pays for. Contingent convertibles, most commonly issued by foreign financial institutions, such as European banks, are built to convert into equity or have their principal written down, potentially to zero, when a trigger is hit.

The fund can lose all of its money in one of those bonds, with no chance of recovery, even if the issuer still exists. It does not have to own contingent convertibles.

Lazard said the team, at Lazard Frères Gestion, manages $8.3 billion in subordinated financial debt strategies and has invested in the asset class for more than 18 years. The ETF listed Monday and has no record of its own.

Lazard Non-Dollar Active Income ETF

XDLR must keep at least 80% of its assets in bonds denominated in currencies other than the U.S. dollar. Lazard says the portfolio will be primarily emerging-market bonds in the local currency.

The Sept. 15 prospectus sets the fee at 0.50%. The listing-day fact sheet showed $10 million in the fund.

VanEck J.P. Morgan EM Local Currency Bond ETF, EMLC, had $4.91 billion on Nov. 9 and has traded since July 2010. It charges 0.30% after a fee cap that runs through May 1, 2027, against a 0.31% gross fee, and it tracks an index of emerging-market government bonds in the local currency.

iShares J.P. Morgan EM Local Currency Bond ETF, LEMB, had $786.7 million the same day and lists an expense ratio of 0.30% in the current prospectus. It is also an index fund, and it has traded since October 2011.

XDLR costs 20 basis points more than either index fund. Both of those funds own emerging-market government bonds in the local currency.

"XDLR is built for this moment: high yield from emerging market local currency bonds, driven by currencies and local rates rather than credit risk or illiquidity," Alex Kozhemiakin, who manages the fund with Denise Simon and Aristotel Kondili, said in the release.

The prospectus allows the credit risk that sentence sets aside. It lets the fund own junk bonds without limit, including junk issued by foreign governments, and it can own company bonds as well as government bonds.

A falling currency can cut the dollar value of the fund's bonds even when the bonds do not move. The prospectus does not say that exposure will be hedged back to the dollar, and the benchmark on the listing-day fact sheet is measured in dollars without a hedge.