FlexShares, the ETF arm of Northern Trust, has launched its first actively managed exchange traded fund, the Ready Access Variable Income Fund (RAVI), aimed at folks who wish to maintain liquidity but seeking that extra yield without exposure to excessive volatility.
RAVI can be a good choice for people wishing to park funds in a safe place in the short run, for which return of capital is more important than return on capital in times of excessive fluctuations. The cash management fund has a variable net asset value and can invest beyond the restrictions of the traditional money market funds. The fund banks on Northern Trust’s cash management legacy while leveraging the trading benefits of an exchange traded fund with a variable NAV strategy.
Historically, cash funds face many challenges including low interest rates and a small supply of suitable securities and a higher demand for these securities. These factors make it difficult for investors to find cash funds with competitive returns. RAVI’s portfolio consists of investment grade debt securities from around the world, including corporate and sovereign bonds from different geographies.
The fund invests a minimum of 65 percent of total assets of in a non-diversified portfolio of quality fixed income securities that includes debt securities, bonds, munis and other securities issued by US and non-US public and private sector entities with short durations.
In terms of exposure, the fund can only invest 25 percent of total assets in one single country while exposure to emerging countries has been restricted to 20 percent. The cap on ‘illiquid’ securities has been set at 15 percent while the ceiling for asset-backed securities and non-agency mortgage securities is set at 10 percent.
Liquidity and low volatility is achieved by focusing on the short-end of the yield curve. The dollar-weighted average portfolio maturity is not expected to exceed two years.
The fund has an annual net expense ratio of 0.45 percent.
Due to the newness of RAVI, there is no current price data available, so I will review this ETF again in a few months.
Disclosure: No holdings