In the wide world of ETFs, few milestones matter more than hitting key AUM milestones. Reaching a new AUM threshold offers liquidity and indicates broad interest in the ETF’s approach and merits. As such, ETF investors and advisors would do well to keep track of when ETFs cross that point. In this case, the total return ETF (TOTR ), the that has done so in the last few weeks, deserves a closer look.
Why look at a total return strategy, first of all? Well, right now, the combination of growing an investment on top of income has real promise. Fixed income has returned to the conversation with real vigor, and markets have taken notice. The prospect of a total return-focused mix of debt securities should grab the attention of most types of investors, given how strong that rebound has been. Of course, investors might approach a gung-ho total return strategy with caution, but that’s where an active view can shine.
Total return ETFs already take a diversified view that includes low-risk holdings like Treasuries alongside riskier corporate bonds, yes. However, investors can lean on managers’ expertise by adding an active approach to that strategy. In TOTR’s case, the ETF invests in Treasuries, corporates, bank loans, and mortgage-backed and asset-backed securities but diversifies its allocations away from the concentration risks of the benchmark. Unlike passive index strategies, it has the added ability to selectively use derivatives chosen by managers to hedge against rate, credit, and currency exchange issues.
TOTR charges a relatively low fee for an active ETF at just 31 basis points (bps). The strategy reached $100 million mostly due to significant new inflows, adding $75.2 million over just the last month. With more than a year left before it hits its three-year mark, the new ETF AUM milestone also marks a big spike in momentum. For investors who want to add a fixed income slice and an active one, a total return ETF like TOTR merits a look. The result is a portfolio that seeks a yield premium relative to standard core bond index exposure. It will also result in better risk-adjusted characteristics than its peers.
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