Over the years, the ETF industry has expanded rapidly, allowing investors to gain access to not only every asset class, but also to various investment strategies. Actively-managed funds, in particular, have become more popular among investors looking for a more cost effective way of tapping into the expertise of management professionals.
In this piece, we’ll go under the hood of five of the largest actively managed ETFs, highlighting each fund’s expenses, investment strategy, portfolio, performance, and management.
Enhanced Short Maturity Strategy Fund (MINT )
- ETFdb Category: Money Market
- Expense Ratio: 0.35%
- Manager: Jerome M. Schneider
Since launching in 2009, PIMCO’s Enhanced Short Maturity Strategy Fund (MINT) has become one of the largest and most popular actively managed ETFs on the market. MINT’s primary objective is to seek greater income and total return potential than money market funds. To accomplish this, the fund invests in short duration investment grade debt securities. In general, money market ETFs offer investors a low-risk source of yield, as well as a valuable defensive tool when uncertainty resurfaces in the market.
MINT’s portfolio consists of nearly 600 individual holdings; combined, the effective duration of these holdings is approximately six months. Roughly 50% of the fund’s total assets are allocated to investment grade credit, while combined, mortgage and government-related fixed income securities make up just under a third of the portfolio. Investors should note that the fund also features some exposure to emerging markets, as well as below investment grade credit.
Meet the Manager
MINT is managed by Jerome M. Schneider, who joined PIMCO in 2008. Schneider is a managing director in the Newport Beach office and head of the short-term and funding desk. Before joining PIMCO, Schneider worked at Bear Stearns as a senior managing director, where he helped develop one of the first “repo” conduit financing companies. Schneider has 18 years of investment experience and holds an undergraduate degree in economics and international relations, as well as an MBA from the Stern School of Business at New York University
Total Return ETF (BOND )
- ETFdb Category: Total Bond Market
- Expense Ratio: 0.55%
- Manager: Scott Mather, Mark Kiesel, and Mihir Worah
Another PIMCO offering, the Total Return ETF (BOND) is the exchange-traded version of one of the largest and most popular mutual funds on the market. The fund offers investors a diversified portfolio of high quality bonds that are selected to maximize return in a risk-controlled environment.
BOND’s portfolio invests in approximately 400 individual securities, which combined have an effective maturity of about seven years and an effective duration of roughly 4.6 years. About 40% of the fund’s total assets are allocated to U.S. investment grade and high yield securities. Mortgage and non-U.S. developed bonds are allocated about 30% each. In terms of geographic diversification, about half of the securities in BOND’s portfolio are from the U.S.. Meaningful exposure is also given to bonds from Italy, Canada, the U.K. and Sweden.
Meet the Manager
Formerly managed by bond-king Bill Gross, BOND is now managed by three individuals from the PIMCO team, including: Scott Mather, Mark Kiesel, and Mihir Worah. Collectively, the team has nearly 60 years of investment experience.
Peritus High Yield ETF (HYLD )
- ETFdb Category: High Yield Bonds
- Expense Ratio: 1.18%
- Managers: Timothy Gramatovich and Ronald Heller
Since launching in 2010, HYLD’s main objective has been to generate a high current income with a secondary goal of capital appreciation. Unlike traditional passive high yield funds, HYLD looks to avoid many of the highly leveraged buyouts that tend to dominate junk bond indexes. Additionally, the fund uses a “Hedged HY”strategy, which means that from time to time HYLD may utilize U.S. Treasuries in an effort to hedge against adverse market declines.
HYLD’s portfolio consists of about 70 individual securities, of which more than two-thirds are U.S. bonds, and and a quarter are non-U.S. The fund invests primarily in bonds rated between CCC+ and B. From an industry breakdown, almost 20% of the portfolio is allocated to fixed income securities issued by oil and gas companies. HYLD also features exposure to debt from companies in the telecommunications, transportation, advertising, mining, financials, and retail sectors.
Meet the Managers
Timothy Gramatovich is the CIO and co-founder of Peritus. Gramatovich has roughly 30 years of experience directly involved in high yield securities. Prior to founding Peritus, he was a portfolio manager with Smith Barney’s Asset Mangement Division, managing high yield portfolios for high net worth individuals.
Ronald Heller is the CEO and co-founder of Peritus. He oversees the portfolio management and trading activities of the company. Starting his finance career 1993, Heller also worked at Smith Barney prior to founding Peritus.
Emerging Markets Local Debt Fund (ELD )
- ETFdb Category: Emerging Markets Bonds
- Expense Ratio: 0.55%
- Managers: David Kwan and Stephanie Shu
Launching in 2010, WisdomTree’s Emerging Markets Local Debt Fund (ELD) has become one of the most popular ETFs available for investors looking to tap into the emerging market bond space. The fund’s primary objective is to seek a high level of total returns consisting of both income and capital appreciation. To achieve its objective, the fund focuses on local debt denominated in the currencies of emerging market countries.
ELD’s portfolio consists of over 100 fixed income securities, the majority of which have a rating of A, BBB, or AA. The fund invests roughly one-third of its assets in Latin American bonds, with securities from Brazil and Mexico each accounting for approximately 10% of total assets. Asian securities make up roughly 35% of the portfolio, with bonds from Malaysia receiving the largest weighting. Bonds from Europe, the Middle East, and Africa account for the remainder of the portfolio.
Meet the Managers
A team of investment professionals, headed by David C. Kwan and Lisa Mears O’Connor, manage ELD. Kwan has been the managing director of Mellon Capital since 2000, and has been the Head of the Fixed Income Management Group since 1994. Shu is a Director of Mellon Capital’s Active Fixed Income team and she received her M.S. from Texas A&M University.
North American Energy Infrastructure Fund (EMLP )
- ETFdb Category: MLPs
- Expense Ratio: 0.95%
- Managers: Energy Income Partners, LLC
The First Trust North American Energy Infrastructure Fund (EMLP) made its debut in 2012 and has since become one of the most popular options for investors looking to add exposure to the MLP space. The fund’s primary objective is to seek total return, as well as focus on current income. EMLP invests in energy MLPs, utilities, Canadian income securities and REITs, all of which have a history of both stellar distributions and meaningful growth in dividends.
EMLP’s portfolio consists of just over 60 individual securities. The fund allocates over 50% of total assets under management to pipeline companies, while 30% is allocated to electric power companies. Meaningful exposure is also given to the propane, coal, marine, natural gas utility, and gathering & processing industries.
Meet the Managers
The portfolio manager and sub-advisor of EMLP is Energy Income Partner, LLC. The firm manages investments in energy infrastructure such as pipelines, storage and terminals. The team is made up of five principals: James Murchie, Eva Pao, Linda Longville, Saul Ballesteros, and John Tysseland. Combined, the team has over 125 years of energy industry and portfolio management experience.
The Bottom Line
Actively managed ETFs have certainly made a name for themselves in the ETF industry, allowing investors to tap into the expertise of professional managers at a relatively low cost. Furthermore, these products are particularly compelling options for those who believe in the benefits of quantitative analysis and active management, but also seek to capitalize on the benefits offered by the exchange-traded fund structure, including reduced costs, increased tax efficiency, and enhanced liquidity.