2023 was a major year for the world of ETFs, and 2024 offers both significant opportunities and thought-provoking challenges for investors. One firm looking at how to help advisors as it leans more into ETFs is Federated Hermes. The firm largely built its investing reputation with mutual funds. Over the last few years, however, it has begun launching more and more ETFs to leverage its existing capabilities.
To discuss the firm’s view on 2024, ETFs, and the investment outlook, VettaFi sat down with Federated Hermes senior vice president and director of ETF business, Brandon Clark, during the ETF Exchange conference in Miami last month. Clark, who joined Federated Hermes in July 2020, joined following five years at Legg Mason and sixteen years as Vanguard’s head of ETF Capital Markets.
“Being new to the ETF business, we’re still doing a lot of brand building,” Clark said. “The good thing is, we’re a legacy asset manager … we’re a $750 billion asset manager.”
The firm is focused on helping advisors figure out the how and when of moving their clients out of cash. Per Clark, advisors are looking for the right way to move out of cash, whether that involves a “stair step” approach or something more direct.
“This is one of those once in a lifetime opportunities,” Clark said. “It’s just, how do you get people to start thinking about how do you get out of cash?
Federated Hermes' ETF Roster and Plans
The firm has launched four ETFs so far, with one focused on equites and the other three focused on bonds. All four invest actively. The firm is looking to leverage its background in fixed income and money market funds to make its pitch about cash within its ETF wrapper. Its three fixed income ETFs could appeal, Clark pointed out, leveraging Federated Hermes’ focus on active ETFs.
For example, the firm just launched the Federated Hermes Total Return Bond ETF (FTRB ) in January. The strategy charges 39 basis points (bps) to actively seek out the best opportunities in investment-grade government and corporate bonds, as well as mortgage and other securities. It uses the “Alpha Pod Process,” a five-part decision-making process focused on duration, yield curve, sector allocation, security selection, and currencies.
Federated Hermes looks to set itself apart not only with its focus on active ETFs, but also its value-added services provided to clients. Per Clark, the firm is looking to build out its digital services, helping advisor clients work with their own clients.
“We have a breadth of different ways we look at markets and market commentary and outlooks on markets, given our strength in the money market, income, short end of the curve,” he said.
Looking ahead, the firm is looking to build out more of its equity suite in the middle part of the year. Those products would join its largest ETF by AUM, the Federated Hermes U.S. Strategic Dividend ETF (FDV ), which charges 50 bps for its active approach to dividend payers.
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