Competition is heating up in the ultra-short bond ETF space. Less than four weeksafter Vanguard launched an ultra-shortbond ETF — its first active bond ETF —BNY Mellon announced it has filed anapplication with the Securities andExchange Commission to introduce itsown ultra-short bond ETF.
Ultra-short bond ETFs optimizeoperating cash and strategic cash needsof investors, bridging the gap betweenmoney market funds and short-termbond funds — with more yield thanthe former and less volatility thanthe latter, said Stephanie Pierce, CEOof ETF, Index, and Cash InvestmentStrategies at BNY Mellon InvestmentManagement. They are especially useful as an alternative to prime moneymarkets, which may be subject to new,additional regulation, she added.
The BNY Mellon Ultra ShortIncome ETF Bond ETF, like the recentVanguard entry and other ETFs in thisspace, will be actively managed. It willinvest in a variety of ultra-short-termfixed income securities, but investments will be concentrated in the banking industry, with at least 25% of netassets invested in domestic or dollar-denominated foreign bank obligations.Assets will have an average A creditrating. Fees were not disclosed in theSEC filing.
Ultra-short-term bond ETFs have
been “extremely popular” and exam-
ples of where “active management has
worked,” said Todd Rosenbluth, direc-
tor of ETF and mutual fund research at
CFRA. “They are a good alternative to
money market funds if you’re willing to
take on a slight bit of risk.”
Actively managed ultra-short-term
bond ETFs are also a way for fund com-
panies to use their in-house expertise to
adjust bond allocations as market condi-
tions change, including interest rates,
Ultra-short bond ETFs “make sense
… in a low-interest-rate environment,”
said Dave DiPetrillo, head of North
American product development BNY
Mellon Investment Management. “In a
low-rate environment, clients are trying
to balance liquidity, duration risk and
He added that over $56 billion is in
ultra-short active bond ETFs, so “the
clients’ demand is there.”
Year-to-date through March 31, assets
in ultra-short-term bond ETFs totaled
$98.5 billion while assets in their mutual
fund counterparts totaled $246 billion,
according to Morningstar. Actively man-
aged funds accounted for 55% of the
ETFs and 98% of the mutual funds.
The SEC in early February requestedcomment on potential changes to regulation of money market funds due to heavywithdrawals from U.S. prime money market funds — which invest in short-termcompany debt, including commercialpaper — and from tax-exempt moneymarket funds in March 2020.
ANOTHER CRYPTO ETF TO MARKET?In another twist on the rush to sponsor a cryptocurrency ETF, AlphaArchitect has filed an application withthe SEC to launch an ETF that invests incompanies associated with the miningof cryptocurrencies rather than incryptocurrencies themselves.
The Alpha Architect ETF Trust plansto invest at least 80% of its assets in theequities of companies “actively involvedin the entire spectrum of cryptocurrencymining, from producers of computer chips(foundries), to manufacturers of computerequipment (manufacturers),” to directlyinvesting in market participants creatingcryptocurrency themselves (miners), butit will not invest directly in cryptocurrencies. Its subadvisor will screen companiesbased on environmental, social and governance factors, according to the filing.
Empowered Funds LLC, which doesbusiness as Alpha Architect, will be theinvestment advisor to the fund, andNew Gen Minting LLC, known as ViridiFunds, will serve as the subadvisor tothe fund. Quasar Distributors LLC willbe the distributor.
Alpha Architect has two relativelysmall ETFs (under $250 million each) —the Alpha Architect U.S. QuantitativeVal ETF (QVAL) and the Alph ArchitectInternational Quant Val ETF (IVAL).Morningstar gives both ETFs a negativerating with one star for the domesticversion and two stars for the international fund. Its analysis of both fundsnotes “the questionable investment process and a weak portfolio-managementteam” though they have a competitiveprice compared to peers.
Bernice Napach can be reached email@example.com.
ETF ADVISORBy Bernice Napach
Market for Ultra-Short Active Bond ETFs Grows
Also, could there be interest in a new cryptocurrency ETF with a twist?