ETF investment and technology platform Tidal Financial Group has listed the Senior Secured Credit Opportunities ETF ((SECD )), an actively managed secured credit fund managed by Gateway Credit Partners. The fund seeks to generate consistent income and preserve capital by investing primarily in a combination of first lien senior secured loans and secured bonds to businesses operating in North America.
Gateway is a value-based credit manager focused on capturing both fundamental and technical inefficiencies in the leveraged loan and high yield bond market. Gateway focuses on generating true alpha, which it defines as yield per turn of leverage significantly greater than their representative indices. Gateway believes a “size arbitrage” exists in credit markets, as rating agency models can over-emphasize size (revenues and market capitalization) over credit fundamentals.
“We are excited to partner with the Gateway team who have a long-term track record of active management in the loan and bond markets,” said Gavin Filmore, COO of Tidal, in a news release. “We believe the corporate credit markets offer investors tremendous opportunities going forward but should be actively managed given the challenging economic environment.”
Gateway’s fundamental investment process focuses on companies exhibiting low leverage, the ability to generate true free cash flow, excess liquidity, and a business model that can withstand significant revenue reductions in downside scenarios.
Gateway founder Tim Gramatovich added: “After almost 13 years of a 0% interest rate policy, fixed income investors have an environment where meaningful yields now exist. At over $3 trillion, the U.S. loan and high yield bond markets offer investors a tremendous opportunity to generate yield."
Gramatovich said that the new ETF “fills a much-needed gap in the actively managed corporate credit space particularly as it relates to the loan market.”
“The loan market has been the purview of CLOs and index products with very little in the way of true fundamental credit work,” Gramatovich said. “We view the secondary loan market as very large and inefficient and ripe for generating both significant income and potential capital gains for investors. Key to success here is avoiding what we call ‘stretch’ 1st liens or massively over-levered loans further challenged with fictional accounting metrics known as ‘pro-forma further adjusted EBITDA.’”
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