Build Asset Management, an asset management firm specializing in strategies focused on fixed income and options, just launched the BUILD Bond Innovation ETF (NYSE Arca: BFIX), a bond allocation fund designed for a modern global environment defined by low interest rates and constrained economic growth.
John Ruth, co-founder and CEO of Build Asset Management, explains how the fund combines the risk-mitigating elements of investment-grade fixed income with the upside potential of equity markets to outperform traditional bond strategies, why the current economic environment is the perfect time to bring BFIX to the market, and why he believes that active management is the right choice for investors.
ETF Trends: Tell us about the Build Bond Innovation ETF and what it invests in.
John Ruth: The BUILD Bond Innovation ETF is a bond allocation fund designed for a modern global environment defined by low interest rates and constrained economic growth. The fund seeks to outperform traditional bond strategies under the continuation of low yields and/or rising prices in equity markets. The ETF is designed to play defense first, and typically has 90% to 95% of its holdings in investment-grade fixed income, with the intent of providing downside risk management over the long term. It seeks to maintain a moderate duration profile and requires investment-grade credit quality in its bond holdings. The ETF invests the remainder of its assets in an actively managed call option overlay tied to the upside performance of the S&P 500.
ETF Trends: What is the fund’s investment philosophy?
John Ruth: Despite what you read in the headlines about inflation and rate hikes, Build believes that demographic factors such as slowing population growth as well as reliance on debt to stoke GDP growth will force the persistence of historically low interest rates for the long term. These conditions present problems for traditional bond funds which have been the go-to anchor for downside protection and diversification in classically designed portfolios. Today’s modern economic environment requires investors look for new ways to achieve risk mitigation with meaningful upside potential. As credit markets are squeezed, equities will continue to achieve real growth long-term, but will remain volatile. Build combines the risk-mitigating components of investment-grade fixed income with the upside potential of equity markets and uses a quantitative, rules-based framework to manage the strategy. In combination, these ingredients seek to minimize drawdown, while capturing upside potential from our unique options overlay strategy.
ETF Trends: What made you decide that now was the time to bring this ETF — your first — to the market?
John Ruth: Build started our investment journey in the retirement plan space, managing CITs and SMAs for group retirement plans. Our customers and prospects have been requesting a similarly managed solution in an ETF wrapper. The voice of our customers and our belief that market conditions will continue to put pressure on traditional bond funds helped us determine that now was an optimal time to enter the ETF space with a bond alternative built for today’s modern economic conditions. We’re excited that a broader range of investors will be able to access a strategy and investment philosophy that we believe will help many people across walks of life and investment objectives.
ETF Trends: The Fed has indicated that it plans to raise rates this year. Is that a factor with the fund?
John Ruth: Yes, anticipation of rising rates is one reason we believe active management is a prudent choice for investors and allocators. Our management team will be intentional about the quality, duration, and sector exposure to shield the bond core as much as possible from the consequences of rising rates. Prudent management of the bond core combined with the options overlay is designed to outperform the strategy’s benchmark and peer group. We believe our methodology is well-positioned and well-timed to be an alternative for investors and allocators to consider, especially in a rising rate environment.
ETF Trends: What are your long-term goals for the fund?
John Ruth: Our thesis is that the next 40 years in bonds looks quite different than the prior 40 years; consequences of the modern economic theory and easy money policies. As a result, we believe investors and allocators will need to adopt a new approach to achieve lower volatility with upside potential in their portfolios. As such, we believe BFIX is well-positioned to complement a diverse portfolio for years to come. We aim to build a brand represented by products that help investors achieve their goals. BFIX will be the flagship solution for that endeavor, and we have high hopes that we will delight investors with this timely solution.
For more information, visit: https://getbuilding.com/etfs/bfix/.
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