Most of the focus in the ETF industry goes to passively-managed index funds since they attract the lion’s share of new investor money.
This week, actively-managed ETFs take center stage with three new offerings, including two from first-time ETF provider Spinnaker Trust.
Here are this week’s new fund launches:
|Fieldstone Merlin Dynamic Large Cap Growth ETF
|Large Cap Growth Equities
|Fieldstone/UVA Unconstrained Medium-Term Fixed Income ETF
|First Trust Institutional Preferred Securities and Income ETF
|Preferred Stock/Convertible Bonds
For a list of all new ETF launches, take a look at our ETF Launch Center.
Spinnaker Debuts with Equity and Fixed-Income Offerings
At a time when investors are pouring billions of dollars into passively-managed index funds, first-time ETF provider Spinnaker Trust enters the marketplace with two new actively-managed offerings: Fieldstone Merlin Dynamic Large Cap Growth ETF (FMDG ) and Fieldstone/UVA Unconstrained Medium-Term Fixed Income ETF (FFIU ).
The large-cap growth ETF is managed by Merlin Asset Management, which will select the 25 names that it feels present the most attractive opportunities regardless of sector or industry. The selection process takes a 3-5 year forward look and attempts to identify companies with high levels of profitability, strong and sustainable earnings growth, high-quality earnings and attractive valuations. The portfolio will be equal-weighted and charge an expense ratio of 0.80%. Currently, the fund’s largest-sector exposures include technology (38%), consumer cyclical (20%) and healthcare (17%).
The medium-term fixed-income ETF is sub-advised by Universal Value Investors. As its name suggests, the fund can invest in virtually any fixed-income security so long as the managers keep the overall portfolio duration in the general range of 4-7 years. According to its prospectus, the portfolio is expected to include mostly corporate bonds rated BB and higher, but it can also invest up to 20% of funds without constraint. That means it could have a significant chunk of assets dedicated to junk, unrated or subprime bonds, making it a riskier proposition for income seekers. The fund charges an expense ratio of 0.50%.
First Trust Launches Follow-up to 5-Star Preferred ETF
First Trust already manages one of the more popular preferred ETFs in the marketplace, the First Trust Preferred Securities and Income ETF (FPE ). Over its four-year history, it has netted more than $2.6 billion in total assets and ranks among the best in the preferred category. First Trust looks to build off of that fund’s success with the launch of the First Trust Institutional Preferred Securities and Income ETF (FPEI ).
This fund is unique in that it is an actively-managed fund focused solely on the institutional preferred market, an area that is typically inaccessible to retail investors. Because they are targeted to large investors and are normally sold only in large blocks, they can often provide better relative value to securities sold mainly to smaller retail investors. The fund’s focus on primarily variable rate securities could be particularly attractive to folks looking for some protection from rising interest rates.
Of course, one of the main attractions of preferreds is their yields, with many producing annual dividends of 5% or more. The Institutional Preferred Securities and Income ETF charges a 0.85% annual expense ratio.
For a list of all First Trust ETFs, click here.
Amplify ETF Takes a Strategic Left Turn
The Amplify YieldShares Prime 5 Dividend ETF (PFV ) was a good idea in theory. Its goal was to create a fund-of-funds by targeting the five highest-rated dividend ETFs that demonstrated a combination of high dividend income, low volatility and low expenses. The main problem is that the fund took five relatively cheap ETFs and charged a whopping 0.49% expense ratio just for putting them together. The fund never got any attention, amassing only $1.4 million in assets, which has prompted Amplify to pursue a new strategy with the fund.
As of August 29, the Prime 5 Dividend ETF became the Amplify YieldShares Senior Loan and Income ETF and trades under the ticker YESR (YESR ). Instead of dividend ETFs, the new fund will go after closed-end funds that invest in floating-rate senior loans and other floating-rate instruments. The floating-rate nature of the underlying securities generally makes them quite conservative in nature, although closed-end funds have been known to trade at significant premiums or discounts to their underlying net asset values. The new Amplify ETF maintains the fund-of-funds structures but targets a different universe.
The Bottom Line
It’s unusual to see an ETF make such a significant change of strategic direction as the Amplify ETF has done. Many of the newer fund launches fail to gain any significant traction in the marketplace, forcing the issuers to either change direction or close up shop. The change could give it a boost, but the fund is facing a very uncertain future.
Actively-managed funds have gotten a bit of renewed interest lately as some analysts have begun to question if the massive shift to index funds is such a good thing. First Trust has a strong track record with similar products and Spinnaker brings two solid strategies to the table, but actively-managed funds still have a steep hill to climb.
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