AllianceBernstein’s ETF Head Sees Opportunities in Thematics

Noel Archard joined AllianceBernstein this year as the asset manager’s first global head of ETFs. The ETF industry veteran will follow his roles at Vanguard, BlackRock and, most recently, State Street Global Advisors and spearhead AB’s entry into the ETF space. The issuer has two actively managed ETFs in registration that are scheduled to launch in the fall.  

ETF.com spoke with Archard about AB’s reasons for entering the space and what lies ahead. 

ETF.com: Would you provide an overview of what AllianceBernstein is looking to do in the ETF space? 

Noel Archard: From the perspective of why we're doing this, you take all the good things about the ETF vehicle that we're all super familiar with, and you take what AB is really good at, which is research and execution, and put those two together. We want the efficiency that will come with that.  

For some of our strategies that are very heavily used, AB has very large separately managed accounts. When you think about marrying the ETF specs to separately managed accounts, there are a lot of good synergies that come out of that from a liquidity perspective and tax efficiency, and even things like allowing some investors to [access] the strategy in the ETF when they might not hit an SMA minimum yet.  

We have two [pending ETFs] on file with the SEC right now. One is a short duration muni that complements this very big SMA muni footprint we have.  

The other thing we want to do is look at gaps in the lineup. And if we're going to put out something new—that sort of makes sense in this day and age, given the accessibility of ETFs by clients anywhere—then we’ll start with the ETF. It's not going to be to the exclusion of the mutual fund structure, or an SMA or whatever makes sense.  

That gets to sort of a third outcome, which is extending the reach. I think a lot of people know AB, but not everyone uses AB or necessarily knows the scope of what AB does quite well, which is in the fixed income, equity and alternative space in the U.S. and outside the U.S. I think a lot of folks think of it like a research firm, and there's a lot more to it. The ETFs should help us reach a broader audience. 

ETF.com: Will the mutual fund SMA managers be managing the ETFs?  

Archard: Absolutely. AB is not a startup. We're not reinventing the wheel. AB has incredible portfolio managers and traders. We have a lot of great systems in place. I'm looking at this as, how do I integrate the ETF business into something that's working really effectively?  

From that perspective, you want to use—to the degree you can—the same managers. If you have a portfolio manager that's really good at a strategy, we should be vehicle-agnostic and try and determine where the best fit is there naturally. As an active shop, you have to think about capacity. And you have to think about how far can the strategy stretch. And so one of the pieces that we think about is, who's going to buy this? What are the needs of that channel, that particular client, and then we'll figure out the vehicle that makes the most sense for that distribution pattern. 

ETF.com: You mentioned an ultra-short bond ETF. Where are you looking to differentiate with the products you roll out? Will we see anything new and different come out from AB? 

Archard: I would think about that in two ways. One of the differentiations is going to be the vehicle structure. We're giving you the strategy you already know and love from us, but we're adding some bells and whistles by giving it to you in ETF format. It doesn't necessarily have to be different than what we do today, but it should be an improvement on what you get today, whether that's because of the liquidity aspects or the tax efficiency [or something else].  

You mentioned the ultra-short ETF. There's lots of ultra-short products out there, and our clients are using ultra-short products. I'd rather have them—and they would rather—use products that are run by the [firm] that they know [rather than] use someone else's product. And that's feedback that we've gotten from the clients. When there's money in motion, I think it's important to be there.  

Where I think we'll differentiate ourselves is, we're quite good at trading the securities and figuring out where the liquidity is in the markets. I think that's important when you're trying to eke out that little extra bit of yield.  

We’re looking at this as a series of rollouts of products. It doesn't matter what market cycle you're in, income is a persistent need, but a lot of times income comes at a cost. People can trade the beta for the yield. And we don't know that always necessarily makes sense. And if you are going to trade beta for yield, are you sure that your drawdown is going to be soft?  

ETF.com: How much of this was driven by demand from AB’s existing client base? 

Archard: A lot. As with anything, you always want to be tuned in to what your clients are asking for, where they're going. As someone who spent so much time in this industry, there's no magic bullet with the advisors running these accounts. They're using every tool in the toolkit to get to the end results for their clients.  

For our clients, if you can, again, increase the tax efficiency and allow them to purchase the product on multiple platforms where they might be custodying their accounts, that's just convenient for them.  

A big piece of this was the ETF Rule. It just evened that playing field, and I think it made it so much more logical to add [ETFs] into the arsenal for the asset managers that have a broad swath of clients with a lot of different investment needs. That was the intersection of the uptick of clients’ use of ETFs and AB’s appetite for getting into the space.