ETF Watch: FlexShares Debuts Active Bond Fund

Today Northern Trust’s FlexShares arm is rolling out an actively managed bond ETF that targets U.S. dollar-denominated investment-grade debt by investing in other ETFs and registered investment companies. The FlexShares Core Select Bond Fund (BNDC) is listed on the NYSE Arca and comes with an expense ratio of 0.35%.

The fund’s active strategy looks to optimize the opportunity for total return while taking into account the potential for changes in interest rate levels, the shape of the yield curve and credit spread relationships, the prospectus says. It also prioritizes liquidity and diversification.

The fund also manages its interest-rate exposure by taking long or short positions in U.S. Treasury futures or by investing in interest-rate swaps and futures, as well as federal funds and eurodollar futures, according to the prospectus. 

Barclays' New Oil ETN

Barclays has brought to market another iPath ETN focusing on crude oil, the iPath Series B S&P GSCI Crude Oil ETN (OILB).

The strategy joins 30 other oil-focused exchange-traded products, and is akin to the $715 million iPath S&P GSCI Crude Oil Total Return ETN (OIL) and the $3.5 billion United States Oil Fund (USO), which invest in front-month oil futures contracts. OILB comes with a fee of 0.45%, in comparison to OIL’s 0.75%, according to company data.

What’s unique about OILB is that it adopts a new fee structure relative to OIL—and Barclays is “encouraging adoption” of OILB not only with a lower fee but by suspending creations in OIL and lowering the threshold for redemptions, says Senior ETF Analyst Paul Britt.

“OILB charges a lower fee, and has a better fee structure than OIL, which is a legacy item with a path-dependent fee,” Britt added. “Over the long run, all else equal, OIL will end up charging more than its headline fee, since it ignores the long-term effects of fees on the note’s value. OILB does away with this outmoded fee structure.”

The launch comes at a challenging time for oil ETFs, as the chart below shows:

Chart courtesy of StockCharts.com

ETF Name Changes On Index Changes

In other news, there are two low-vol SPDR ETFs that are getting new names following State Street’s decision to self-index the funds, according to FactSet:

• The SPDR Russell 1000 Low Volatility ETF (LGLV) is changing to the SPDR SSGA US Large Cap Low Volatility Index ETF (LGLV) next month as the Russell 1000 Low Volatility Index changes to the SSGA U.S. Large Cap Low Volatility Index.
• The SPDR Russell 2000 Low Volatility ETF (SMLV) is changing to the SPDR SSGA US Small Cap Low Volatility Index ETF (SMLV) as the Russell 2000 Low Volatility Index changes to the SSGA US Small Cap Low Volatility Index. Tickers will remain the same.

Launched in 2013, these ETFs haven’t gathered much in assets, and they struggle with thin trading volumes. LGLV, which goes head to head with funds such as the PowerShares S&P 500 Low Volatility Portfolio (SPLV), has only $70.5 million in assets and trades less than $600,000 on average a day, with a wide spread averaging 0.60%. For comparison, the $6.2 billion-in-assets SPLV trades with average spreads of 0.02%.

SMLV, with $151 million in assets gathered since its February 2013 inception, trades about $1.2 million a day at an average spread of 0.35%. The wider the trading spread, the more costly it is to trade and own these ETFs.

Contact Cinthia Murphy at [email protected]