Go-Anywhere Bond ETF Debuts

June 05, 2018

First Trust brought to market today an actively managed unconstrained bond ETF that will go head to head with some well-established competitors such as the PIMCO Active Bond ETF (BOND) and the SPDR DoubleLine Total Return Tactical ETF (TOTL).

The First Trust TCW Unconstrained Plus Bond ETF (UCON), listing on the NYSE Arca, can own any type of fixed-income security of any credit quality. The global-in-scope, go-anywhere type of bond fund is meant to help investors navigate an environment marked by increasing interest rate volatility.

Behind UCON is TCW’s expertise in fixed income. TCW Investment Management, the fund’s subadvisor, has been running a total return bond mutual fund since the early 1990s. The TCW Total Return Bond Fund (TGLMX) has a 25-year history of delivering annualized returns since inception of about 6.3%, according to company data.

UCON’s portfolio management team includes industry veteran Tad Rivelle, TCW’s Chief Investment Officer, as well as portfolio managers Stephen Kane, Laird Landmann and Bryan Whalen.

Methodology

According to First Trust, UCON will strive to keep duration anywhere between zero and 10 years. For reference, the Bloomberg Barclays U.S. Aggregate Bond Index currently has duration of about 6.5 years. But UCON can allocate as much as 70% to high-yield bonds, 60% to emerging market debt and 50% to local-currency foreign bonds.

“Our portfolio management team takes a full-cycle, value approach to managing fixed income,” said Kane, TCW’s group managing director and portfolio manager. “With a high level of flexibility to manage the portfolio around duration, sector and quality exposures, we plan to focus the portfolio on our best research ideas, while seeking to protect investors in difficult markets as well as achieve attractive returns in environments where we see compelling valuations.” 

Coming to market with $25 million in seed money, UCON had 31 holdings at launch, led by allocations to five-year and two-year Treasury notes. The fund costs a net expense ratio of 0.75%, or $75 per $10,000 invested—a higher price tag than BOND’s 0.61% and TOTL’s 0.55% fees.

 

Chart courtesy of StockCharts.com

Contact Cinthia Murphy at [email protected]

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