Charles Schwab, the financial services firm that entered the ETF arena in November 2009, filed paperwork with the Securities and Exchange Commission to market its first actively managed ETF—a money-market equivalent that looks similar to the highly successful Pimco Enhanced Short Maturity Strategy ETF (NYSEArca: MINT).
The company said that under normal circumstances, the proposed Schwab Active Short Duration Income ETF will invest at least 90 percent of its net assets in a portfolio of investment-grade short-term fixed-income securities issued by U.S. and foreign issuers, as well as other short-term investments.
The planned fund is the latest MINT clone to make an appearance in the relatively undeveloped active ETF marketplace. Pimco’s MINT has gathered more than $2 billion since its launch in November 2009, and it’s now the second biggest active ETF by assets.
Since then, a number of other money managers—including Legg Mason, BlackRock’s iShares and now Schwab—have filed to offer short-term bond ETFs that are meant to play a money fund role in portfolios. FlexShares, the ETF arm of Northern Trust, in October actually launched a competing MINT-like fund, the FlexShares Ready Access Variable Income Fund (NYSEArca: RAVI).
ETFs with money market fund characteristics are attracting investors’ attention in the wake of the financial crisis, when the Reserve Primary Fund “broke the buck.” That crisis, occurring when credit markets were becoming entirely dysfunctional, sent the fund’s net asset value below the $1 line in the sand investors had always considered sacrosanct.
Some investors, voting with their assets, seem to be saying that if money market funds aren’t as good as cash, why not venture ever so slightly further out on the yield curve than money funds do to pick up a bit of extra yield?
Fund sponsors seem recognize MINT’s popularity by showing a willingness to risk launching active strategies focused on the void that that questions surrounding money market funds has created. Moreover, Legg’s offering is its first ETF, period, which says a lot about how large mutual fund companies are likely to move into the ETF market without jeopardizing existing franchises.
Schwab didn’t say in the prospectus how much the fund’s annual expense ratio would be, nor did it say what the ETF’s ticker symbol would be.
MINT has an annual expense ratio of 0.35 percent—meaning a $10,000 investment costs $35 a year.
FlexShares is pricing its competitor, RAVI, at 0.25 percent and BlackRock is pricing its proposed iShares Ultrashort Duration Bond Funded at 0.25 percent as well, signaling that competing on price is likely to be a characteristic of this relatively untapped pocket of the ETF market.
For the record, Bill Gross’ Pimco Total Return ETF (NYSEArca: BOND), which has gathered $3.7 billion since its March 1 rollout, is currently the biggest active ETF by assets.
Assets in active ETFs make up less than 1 percent of the nearly $1.291 trillion now invested in U.S. ETFs.
Charles Schwab has amassed a total of almost $8 billion in its lineup of 15 existing index ETFs.
When ETF-friendly advisors give advice to prospects, it’s worth noting what they shouldn’t say.
How is defining smart beta tricky? Let us count the ways.
Companies do better when founders control the lion's share of corporate voting power.
Do negative earnings show up in an ETF’s price-to-earnings ratio? It depends on who you ask.