Under the Hood of the 5 Largest Actively Managed ETFs

by on July 9, 2014 | Updated December 8, 2014

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 the five 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

Overview

PIMCO’s Enhanced Short Maturity Strategy Fund (MINT) is one of the largest and most popular actively managed ETFs on the market. Launching in 2009, the fund has accumulated more than $3.8 billion in total assets under management.

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. 

Portfolio

MIT’s portfolio consists of over 640 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.

Performance

Over the past four years, MINT’s annual returns have ranged from 0.45% to 2.42%. While these numbers are by no means impressive, investors must realize that money market ETFs are not used for capital gain, instead these funds are for those looking to preserve capital and have a low-risk source of current income. MINT’s distribution yield is approximately 0.7%; over the past four years, the fund has paid out roughly $1.00 in distributions each year. 

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 [see our Actively Managed ETFdb Portfolio]. 

Total Return ETF (BOND)

Overview

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. Managed by the bond king Bill Gross himself, the fund offers investors a diversified portfolio of high quality bonds that are selected to maximize return in a risk-controlled environment.

Though the fund is relatively new, launching in 2012, it has accumulated over $3.4 billion in total assets under management. As well, more and more investors have come to embrace this actively managed fund as a core fixed income holding. The ability to tap into the expertise of Bill Gross with a low-cost vehicle is also why the fund has grown in popularity.

Portfolio

BOND’s portfolio invests in approximately 750 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. 

Performance

Since the fund was only launched in 2012, there is little historical performance data. In 2013, however, BOND lost 1.26% on the year. The fund features an over 2% dividend yield, and in 2013, the fund paid out over $2.95 in distributions. 

Meet the Manager

Bill Gross is one of the most well-known investors on Wall Street. He is the founder, managing director, and CIO of PIMCO. Since founding the firm in 1971, Gross now oversees the management of nearly $2 trillion of securities. He has over 40 years of investment experience, and has received multiple awards, including the Fixed Income Manager of the Decade for 2000-2009 and Fixed Income Manager of the Year for 1998, 2000, and 2007.

Peritus High Yield ETF (HYLD)

  • ETFdb Category: High Yield Bonds
  • Expense Ratio: 1.25%
  • Managers: Timothy Gramatovich and Ronald Heller

Overview

Making its debut in 2010, AdvisorShares’ Peritus High Yield ETF (HYLD) has raked in over $1 billion in total assets under management. Managed by Peritus’s CIO and CEO, HYLD’s main objective is 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.

Portfolio

HYLD’s portfolio consists of only 75 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.

Performance

Unlike many fixed income funds, HYLD has managed to log in double digit return in 2012 and 2013. In addition, the fund yields roughly 6.5%; since inception, HYLD has distributed roughly $4.00 per share every year. Distributions are made monthly [see the Complete List of Monthly Dividend Paying ETFs].

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 Lisa Mears O’Connor

Overview

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 has accumulated over $850 million in total assets under management. 

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. 

Portfolio

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. 

Performance

ELD’s first full year of trading got off to a rough start, with the fund logging in a loss of 2.15% in 2011. In 2012, ELD managed to gain over 14%, but the following year, the fund dropped once again, losing over 10%. ELD yields over 3.0%, paying distributions monthly.

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. O’Conner has been a managing director of Mellon Capital since 2010. She is responsible for managing Mellon Capital’s active fixed income team [see also Free Report: How To Pick The Right ETF Every Time]

North American Energy Infrastructure Fund (EMLP) 

  • ETFdb Category: MLPs
  • Expense Ratio: 0.95%
  • Managers: Energy Income Partners, LLC

Overview

The First Trust North American Energy Infrastructure Fund (EMLP) made its debut in 2012, and has since then accumulated over $780 million in total assets under management. EMLP is 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.

Portfolio

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. 

Performance

Since the fund was only launched in 2012, there is little historical performance data. During its first full year of trading, however, EMLP gained 16.66% on the year. The fund yields 3.00% and pays distributions quarterly. 

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.