Displaying items by tag: active etfs

In a CNBC interview, Blackrock COI Rick Rieder shared some thoughts on Blackrock’s newest active fixed income fund, and why he believes that active fixed income offers several advantages for investors. 

Active fixed income managers have the latitude to seek opportunities that are beyond what’s represented in the indices. As an example, he cites the Blackrock Flexible Income ETF (BINC) which has outperformed its peers since its inception in late May. Over this period, BINC is up 0.3%, while the iShares Core US Aggregate Bond ETF (AGG) is off by 4% and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is down 0.2%. 

BINC’s biggest allocation is to bonds outside of the US at 22% with US high yield debt and US investment grade debt accounting for 17% and 14%, respectively. According to Rieder, the stronger US dollar is leading to more attractive opportunities overseas. 

Passive funds are unable to take advantage of these opportunities. Another advantage for active fixed income is that certain pockets of risk can be avoided as well. He cites this combination as why active fixed income has outperformed, since it leads to more yield and reduced volatility.  

Finsum: Blackrock CIO Rick Rieder explained some of the structural advantages of active fixed income to identify opportunities and avoid pockets of weakness. 

Over the last couple of years, there has been an increase in the number of actively managed funds that offer exposure to more niche areas such as collateralized loan obligations, asset-backed securities, commercial mortgage-backed securities, and agency mortgage-backed securities. The latest entrant in this space is the Janus Henderson Securitized Income ETF (JHG). 

The ETF seeks to generate high income by providing exposure to “the most attractive opportunities on a risk-adjusted basis” across the market for securitized debt. The firm believes that investors can meet their income and duration goals in this sector with lower levels of credit risk. Many of these assets have less sensitivity to interest rates unlike many parts of the fixed income market. According to Paul Olmstead, the senior manager research analyst for fixed income at Morningstar Research Services, “This is a part of the market that does require active management and specialized expertise as there’s a complexity component.” 

These funds have also outperformed amid the increase in volatility over the last couple of years. Three years ago, Janus Henderson launched the Janus Henderson AAA CLO ETF (JAAA) which currently has $4.6 billion in assets. In a validation of its premise, the fund delivered a total return of 6.9% YTD and 0.5% in 2022. To compare with a benchmark, the iShares Core US Aggregate Bond ETF (AGG) has a total return of -0.8% YTD and was down 13% in 2022. 

Finsum: Many active fixed income funds are being launched with a specialized focus on a particular niche. These funds have outperformed amid the volatility in the fixed income market. 

First Trust Advisors is launching its 16th taxable fixed income ETF with the First Trust Core Investment Grade ETF (FTCB). The fund has an expense ratio of 0.55% and will look for the maximum possible long-term return by investing all of its funds in investment-grade securities, comprising Treasuries, TIPS, mortgage-backed securities, asset-backed securities, US corporate debt, non-US fixed income securities, municipal bonds, and CMOs. 

The fund’s portfolio managers are Jim Snyder, Jeremiah Charles, Todd Larson, Owen Aronson, Nathan Simons, and Scott Skowronski. Its core philosophy is to analyze fundamentals to identify opportunities and risks while seeking alpha through sector allocation and duration management. Decisions are made through a defined and repeatable process which includes scenario analysis and stress testing. 

They see upside for FTCB given that yields and credit spreads are at attractive levels. First Trust also believes FTCB will outperform in an economic downturn due to lower credit risk. It also believes the fund is well suited for the current market environment where risk management has been crucial, and active strategies have outperformed. According to First Trust ETF strategist Ryan Issakainen, the fund should “produce better risk-adjusted returns than passive benchmarks.”

Finsum: First Trust is launching a new active fixed income ETF, the First Trust Core Investment Grade ETF which looks to outperform passive benchmarks, maximize long-term returns, and minimize credit risk. 

Within asset management, active fixed income is in a growth boom based on a surge of inflows and new issuances to meet this demand. There are two secular components as ETFs continue to displace mutual funds as preferred vehicles for fixed income investing, and institutions and advisors become more aware and comfortable with the category. 

And, a cyclical factor is the current market environment given the combination of attractive yields and uncertainty about the trajectory of monetary policy. These environments tend to favor active over passive strategies since active managers have more latitude in terms of credit quality and duration.

In recent months, we’ve seen a frenzy in terms of new issues with Vanguard and Blackrock introducing active ETFs that mirror their own active fixed income mutual funds. Now, Capital Group is joining the fray with the launches of the Capital Group Core Bond ETF (CGCB) and the Capital Group Short Duration Municipal Income ETF (CGSM). Asset managers are responding to demand for these products, or otherwise would lose market share to firms who provide ETF versions of popular mutual funds. 

CGCB invests across the entire fixed income spectrum with a focus on capital preservation and generating income. CGSM invests in municipal debt that is exempt from federal taxes and typically short-duration. 

Finsum: Capital Group is launching two new active fixed income ETFs which is a major trend in the asset management world. 

Within asset management, active fixed income is in a growth boom based on a surge of inflows and new issuances to meet this demand. There are two secular components as ETFs continue to displace mutual funds as preferred vehicles for fixed income investing, and institutions and advisors become more aware and comfortable with the category. 

And, a cyclical factor is the current market environment given the combination of attractive yields and uncertainty about the trajectory of monetary policy. These environments tend to favor active over passive strategies since active managers have more latitude in terms of credit quality and duration.

In recent months, we’ve seen a frenzy in terms of new issues with Vanguard and Blackrock introducing active ETFs that mirror their own active fixed income mutual funds. Now, Capital Group is joining the fray with the launches of the Capital Group Core Bond ETF (CGCB) and the Capital Group Short Duration Municipal Income ETF (CGSM). Asset managers are responding to demand for these products, or otherwise would lose market share to firms who provide ETF versions of popular mutual funds. 

CGCB invests across the entire fixed income spectrum with a focus on capital preservation and generating income. CGSM invests in municipal debt that is exempt from federal taxes and typically short-duration. 

Finsum: Capital Group is launching two new active fixed income ETFs which is a major trend in the asset management world.