ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Natixis Hits Volatility With Short Duration Income ETF ‘LSST’
News
Share

Natixis Hits Volatility With Short Duration Income ETF 'LSST'

Aaron NeuwirthOct 21, 2019
2019-10-21

ETF Trends spoke with Mark Pawlowski, an Investment Strategist for Natixis Investment Managers, about the Natixis Loomis Sayles Short Duration Income ETF (LSST A-). Pawlowski explained where the portfolio managers are concentrating their efforts, as well as the role volatility, among other things, will play in the coming months.

The Loomis Sayles management team focuses its energy on sector allocation and security selection. It’s less about trying to predict where interest rates are going, and they’re not trying to manage the duration of the portfolio. Instead, the team is attempting to target a two-year duration, and add value through security selection and their sector underweights or overweights.

“That’s an easier position to take, nowadays, given recent uncertainty about interest rates,” Pawlowski says.

Having seen a lot of volatility in the yield curve, it makes sense. Even looking at the area Natixis operates in with this fund — the two-year Treasury — there’s been a delta of almost 40 basis points in this past month.

Essentially, volatility has been heightened in the market. This can be seen in the MOVE Index, which measures volatility in the Fixed Income sector. The team expects volatility to persist for the next 12 to 18 months.

As a result, they have altered their risk budgets based on some of those factors. LSST is actually at the lower end of its risk budget. This is consistent with the managers’ belief that when focusing on short duration, investments should be high quality and have ample liquidity.

“If someone asks you what keeps you up at night, the answer should probably be, ‘Not a lot,’ because this ETF has diversification of not just issuer but sector diversification of issue,” Pawlowski states. “And that’s how the team runs it, believing that if someone wants to allocate to a short investment to meet a future liability they’re going to focus on names that can earn a yield advantage and provide some alpha, but also something that is higher quality and high liquidity.”

Current Strategies In Lowering Rate Risk

In answering many questions regarding current strategies, whether considering if there’s time to go short or extend the duration, these are not areas managed in the portfolio. At the same time, with investors seeing the yield curve move down by 100 basis points, seeing the fixed income benchmarks up high single digits, and wanting to take their interest rate risk down, it would be wise to invest to achieve yield advantage, as well as some capital appreciation, compared to a money market.

Looking at what kinds of opportunities there are when it comes to short-term yields from these different sectors, Pawlowski believes it is good to look at this from the perspective of the economic cycle. Things are in the late expansion phase, which tends to be associated with peaking profit margins, more mergers and acquisitions activity, and a larger build-up of debt to finance activities that are more accretive to the shareholder as opposed to the bondholder.

“Typically, in that type of environment, the investment team in this portfolio would want to take some of the risk down, become more defensive, build liquidity into the portfolio, and provide a solution that is prepared for the next phase of the cycle, which would be a downturn,” Pawlowski explains.

This is not necessarily the primary expectation in the next 12 to 18 months, but some volatility will likely define that period. Allocations in the portfolio are underweight U.S. Treasuries, where yields are meager. But with decent growth and solid fundamentals, opportunities are more available in investment-grade credit and securities related to the consumer.

Ultimately, it is the consumer that’s been the engine keeping things going. Consumer spending drives GDP growth, and when looking at metrics such as low unemployment rates or solid wage growth, these have all been positive signals for the consumer. The portfolio holds asset-backed securities which benefit from the strength of consumers, while also earning a little extra yield over Treasuries. That’s considered a nice exposure.

Related: Natixis Addresses Why Volatility ETF Looks Abroad

As Pawlowski notes, “Obviously there are more possibilities because, for example, if you have a car loan, you’re probably dealing in that shorter area of the curve, as most car loans are 3 to 5 years. So there are ample opportunities for investments based on the interest rate or duration the managers are trying to achieve. But the other area where we still have a decent exposure is investment-grade credit. That’s something that this team and Loomis, in general, think that they do very well, and have done since the 1920s.”

The point is to identify new opportunities and find issues that will hold up based on the changing market environment. The team remains focused on names that continue growing and will maintain that balance sheet strength, and pivot the allocations accordingly between different industries.

This article originally appeared on ETFTrends.com


Content continues below advertisement

» Popular Pages

  • Tickers
  • Articles

Jan 27

ETF Issuer League: JPMorgan ETFs Almost $100 Billion

Jan 27

Main Management Market Note: January 27, 2023

Jan 27

As Recession Signals Grow, Turn to Risk-Managed ETFs

Jan 27

HGER Acts as a Compelling Solution for Inflation

Jan 27

Mutual Fund-to-ETF Conversions: The Future in 4 Charts

Jan 27

American Century ETF Duo Hits Key Buy Signals Friday

Jan 27

ACES and AMLP Aid Investing in the Energy Transition

Jan 27

Target Long Duration, High Quality Fixed Income

Jan 27

The Sharpe-r Way to Invest

Jan 27

Structure Matters: Volatility May Make 60/40 Unclear

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

SMH

VanEck Semiconductor ETF

XLK

Technology Select Sector SPDR...

VTI

Vanguard Total Stock Market...

SOXX

iShares Semiconductor ETF

BLOK

Amplify Transformational Data...

META

Roundhill Ball Metaverse ETF


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X