Actively Managed ETFs Seek Bigger Footprint

May 09, 2014

Besides Gross' star power and Pimco's marketing muscle, there's also a clear sense that active bond funds have a receptive audience given both the ultra-low yields that have prevailed since the market crash of 2008, and the droves of retiring baby boomers who absolutely need income from their investments.

Active managers have a clear opportunity to deliver yield and to outperform bond indexes, and advisors are scouring the landscape to find creative ways to help their clients.

Global Financial Private Capital, a Sarasota, Fla.-based advisory firm, is the single-biggest owner of the AdvisorShares Newfleet Multi-Sector Income ETF (MINC | C)—a one-year-old active fund with $109 million in assets. It can serve as a money market proxy, but its manager does fish for credit risk in a portfolio with duration between one and three years, explaining a yield that's often above 3%.

"It fills a need—demand for this type of an instrument is only increasing, because the segment of the population that needs it cannot tolerate anything else," said Chris Bertelsen, chief investment officer at Global Financial, which has 10% of its $3.4 billion in assets under management in ETFs.

"I get calls from people all the time that have maturing CDs, and they tell me: 'I can't take it anymore,'" Bertelsen said about the real-world effects of low rates on investors, adding that MINC was a solid solution for those looking for decent yield without taking on irresponsible credit or interest-rate risk.

Pimco's MINT—again, the biggest active ETF in the world—is a bona fide money market fund replacement with duration of no more than one year, and its success also suggests the joint thirst for extra yield without sacrificing safety that Bertelsen says motivates so many investors these days.

 

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