Following WisdomTree’s “go anywhere” fund UBND’s (WisdomTree Western Asset Unconstrained Bond ETF) launch in June, Hartford, Conn-based Virtus Investment Partners entered the exchange-traded fund industry by debuting a similar product recently.
The newly launched Virtus Newfleet Multi-Sector Unconstrained Bond ETF (NFLT) has been launched in partnership with their party manager Newfleet Asset Management, a wholly-owned affiliate of Virtus.
Virtus’ actively-managed product uses a sector rotation strategy in order to provide high current income and capital appreciation. The unconstrained investment strategy does not require the manager to follow a specific index or niche in the fixed income space. Instead, it can reach every corner of the fixed income market irrespective of credit quality, currency, type of security or issuer.
While NFLT is designed to benefit from diversification, the actual fund performance depends upon the choices made by its active manager. Investors choosing to invest in NFLT, in a way, are voting for the security selection skills at Newfleet.
Also, since the fund is index agnostic, it is not forced to take such risks that typically get embedded in a benchmark as overvalued credits or rising interest rates. One of the key aims of the fund manager remains to control the duration risk within the final portfolio.
Newfleet uses a risk-reward framework to select securities it believes will outperform the market in terms of income and return. Unconstrained funds typically focus on many assets across various sectors, and tend to have a longer term investment horizon. Moreover, portfolio managers are free to use alternative asset classes and derivatives to hedge against adverse movements.
The new fund takes a top-down investment approach and assesses value in sectors along with interest rate outlooks to decide on exposure limits. Next, the fund manager takes a bottom-up approach to screen securities based on fundamentals and reviews credit risks, issue structure, firm management and technical conditions.
Managers finally select high conviction securities from 14 sectors that encompass both non-investment grade and ex-US credits in various currencies. That the fund managed to mop up about $130 million in a short span of time speaks volumes about investors’ confidence in the portfolio manager’s security picking skills.
NFLT has a gross expense ratio of 0.87 percent.
Disclosure: No holdings