Actively managed exchange-traded funds have failed to capture investors’ imagination in the US despite the overall ETF industry growing apace with assets under management crossing $2 trillion in 2015. Actively managed fixed income funds, however, have fared better by cornering two-thirds of the $24 billion overall active niche.
New York-based Guggenheim Partners – the eighth largest US ETF issuer, recently expanded its fund offerings with the launch of the Guggenheim Total Return Bond ETF (GTO). The actively-managed GTO shares most of the fund managers with its mutual fund cousin – the Guggenheim Total Return Bond Fund (GIBAX), and targets investment-grade bonds across sectors.
Actively managed bond ETFs have lately found favor with investors amid heightened market volatility and an ultra-low interest-rate environment. Jeffery Gundlach’s SPDR DoubleLine Total Return Tactical ETF (TOTL) gathered $2 billion in assets in 2015, more than any new ETF last year. GTO will compete with TOTL and another popular active bond ETF – the PIMCO ETF Trust (BOND). The new fund, like its competitors, will use the Barclays Aggregate index as a target for sector duration and a benchmark for the broader fixed-income segment returns.
The approach of the new fund lies in that it picks new holdings based on methodologies centered on behavioral finance which hypothesizes that investors’ value avoiding loss more than they value alpha or outperformance.
GTO aims to maximize income while trying to avoid losses and undertakes rigorous credit analysis to uncover value in otherwise underappreciated asset classes such as collateral loan obligations (CLOs) and commercial asset-backed securities (ABS).
Out of the $38 trillion US fixed-income market, only $17 trillion appear in the Barclays Aggregate Bond Index, leaving aside a wide swathe of assets that are underfollowed, and can offer attractive yield and duration.
Guggenheim believes there are other assets outside the Barclays Index to be tapped into since the benchmark index was not designed to maximize risk-adjusted total return.
Consequently, the GTO portfolio looks very different and contains asset-backed securities – both corporate and commercial, preferred securities, bank loans, munis and corporate bonds that includes both investment-grade and high-yield securities.
GTO charges 0.50 percent annually, or $50 for each $10,000 invested.
Disclosure: No holdings