Arrow Near Launch Of High-Yield ETF

April 11, 2012

Arrow close to launching a multi-asset-class, high-yield ETF that includes everything but the kitchen sink.

Northern Lights ETF Trust filed updated paperwork with the Securities and Exchange Commission indicating it is close to launching an ETF under the Arrow Investments name that’s chock full of different types of assets from around the world, in emerging as well as developing markets, that share one attribute: attractive yields.

The Arrow Dow Jones Global Yield ETF (NYSEArca: GYLD) will come with a total net expense ratio of 0.75 percent. The fund will be the latest ETF to focus on high-yielding securities, although most are focused on either debt or equities.

Another distinction is that GLYD will wrap a number of different assets—including common stocks, preferred stocks, depository receipts, corporate bonds, sovereign bonds, REITs, royalty trusts and master limited partnerships—into one ETF. The fund’s closest competitor is the iShares Morningstar Multi-Asset Income Index Fund (BATS: IYLD), which launched last week, and comes with a 0.60 total net expense ratio.

With most of the developed world mired in a slow and fitful recovery from the market meltdown of 2008-2009, official short-term interest rates remain near zero in the United States. Investors have thus been scouring the investment landscape for securities that provide good yields without too much extra risk. We wrote about that trend last fall in a blog that highlighted the iShares High Dividend Equity Fund (NYSEArca: HDV).

The filing said the Arrow strategy will use an underlying Dow Jones Global Composite Yield Index, which aggregates all these different types of investments with a view to cherry-picking the 150 highest-yielding investable securities in the world within three broad underlying asset classes: equity securities, fixed-income securities and alternative investments.

The fund will invest at least 80 percent of its total assets in securities of the underlying index and may invest up to 20 percent of its total assets in other instruments including futures, options and swaps.

Each type of security—equity, sovereign debt, corporate debt, real estate, energy securities—will be equal-weighted at 20 percent of the underlying index on rebalance and reconstitution dates. Each asset class will be represented by about 30 component securities in the underlying index.

Securities in the underlying index may include securities from developed or emerging market countries and securities of any credit quality, including junk bonds. The underlying index is rebalanced and reconstituted at the end of each calendar quarter.

The filing said that although the advisor intends to invest in all of the positions in the index, the fund may use a sampling strategy to achieve its objectives. Olney, Md.-based Arrow Investment Advisors LLC will serve as investment advisor of the ETF, the filing said. Omaha, Neb.-based Northern Lights will be the fund’s distributor.

Arrow, which specializes in alternative investment strategies, already markets five mutual funds. The permission required from the Securities and Exchange Commission to issue ETFs was obtained more than two years ago, an Arrow official told IndexUniverse in a telephone interview last fall.


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