FlexShares, the firm that recently expanded its relatively young product lineup to include international equity funds, announced today the launch of its first active ETF. The FlexShares Ready Access Variable Income Fund (RAVI) will seek to deliver maximum current income consistent with the preservation of capital and liquidity. To accomplish that objective, the new ETF will invest primarily in a portfolio of investment grade bonds, including Treasuries, municipal bonds, and corporate debt [see also Monthly Dividend ETFdb Portfolio].
The average duration of RAVI will vary based on the forecasts from Northern Trust’s Investment committee, but will generally not exceed one year. The combination of short term durations and relatively high credit quality means that RAVI should be a relatively low risk security, potentially making it appealing as a cash substitute for investors looking to pull money out of equity markets temporarily [for updates on all new ETFs, sign up for the free ETFdb newsletter].
RAVI seems to be a direct competitor to PIMCO’s Enhanced Short Maturity Strategy Fund (MINT), which has gathered about $2 billion in assets since debuting in late 2009. MINT, an active ETF with a stated objective of delivering greater income and total return appreciation than money market funds, maintains an effective duration of approximately one year. That fund holds a variety of investment grade securities, including high quality corporates, mortgage-backed securities, and municipal bonds [see Free 7 Simple & Cheap All-ETF Portfolios].
Cheap, Active ETF
RAVI will charge an expense ratio of just 25 basis points, making it one of the most cost efficient active ETFs out there. MINT, by comparison, charges 0.35% annually. That difference, while seemingly minor in absolute terms, represents a significant portion of the overall yields delivered by these types of products (especially in the current environment). MINT recently had an SEC 30-day yield of about 0.76%.
Disclosure: No positions at time of writing.