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4 Asset Managers Launch Income-Generating ETFs

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What You Need to Know

  • Harbor Capital has launched its first ETFs — two active, transparent fixed income ETFs.
  • Columbia Threadneedle adds a short duration bond ETF, filling out its fixed income ETF offerings.
  • FlexShares adds four ESG ETFs: two bond funds and two equity funds, all core passive funds.

The search for yield has led four asset managers to introduce new income-generating ETFs, among them Harbor Capital Advisors, which has joined a growing number of asset managers launching their first ETFs.

The Chicago-based asset manager with $64 billion in assets has launched two actively managed fully transparent fixed income ETFs: the Harbor Scientific Alpha Income ETF (SIFI), which invests in investment-grade and high-yield bonds with a tactical derivative overlay; and the Harbor Scientific Alpha High-Yield ETF (SIHY), which invests in high-yield bonds and seeks a total return topping that of its benchmark, the ICE BofA U.S. High Yield Index.

SIFI has an expense ratio of 0.50%; SIHY, an expense ratio of 0.48%

BlueCove Ltd. is the subadvisor to the new ETFs. The London-based firm bases its portfolio management on what it calls scientific fixed income investing, which involves re-engineering the traditional discretionary investment model in order to eliminate weaknesses.

The investment process is broken down into its objective and subjective component parts with human discretion directed toward the design, construction, and monitoring of the process and quantitative research used to target more objective, disciplined and repeatable risk-adjusted returns. Other firms refer to the approach as a systematic alpha-seeking strategy.

Columbia Threadneedle Adds Short-Term Bond ETF

Columbia Threadneedle Investments, another asset manager adding fixed income ETFs, has expanded its existing lineup of strategic beta fixed income ETFs with the addition of the Columbia Short Duration Bond ETF (SBND).

The ETF focuses on generating income in four segments of the debt markets — U.S. investment-grade corporates, U.S. investment-grade securitized debt, U.S. high yield, and emerging market sovereign and quasi-sovereign debt — by tracking the firm’s proprietary Beta Advantage Short Term Bond Index.

The idea is a portfolio that does not sacrifice yield or take on excessive credit risk.

The new ETF joins a lineup that includes Columbia Multi-Sector Municipal Income ETF (MUST) and the Columbia Diversified Fixed Income Allocation ETF (DIAL). All three funds are managed by active fixed income investors whose expertise informs the rules-based approach that underpins each ETF and all three three feature monthly reconstitutions, rebalancing and distributions. SBND, has a 0.25% expense ratio — between those of DIAL (0.28%) and MUST (0.23%).

Columbia Threadneedle Investments manages $593 billion of assets across developed and emerging market equities, fixed income, asset allocation solutions and alternatives.

FlexShares Adds Suite of Passive ESG ETFs

Northern Trust Asset Management’s FlexShares ETFs launched a suite of four core ETFs focused on climate.

Two of the funds are bond index ETFs: the FlexShares ESG & Climate Investment Grade Corporate Core Index Fund (FEIG), which has an expense ratio of 0.12%, and the FlexShares ESG & Climate High Yield Corporate Core Index Fund (FEHY), with an expense ratio of 0.23%.

The equity ESG ETFs are the FlexShares ESG & Climate US Large Cap Core Index Fund (FEUS) and FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (FEDM), which each have a 0.09% expense ratio.

The four ETFs are meant to improve the overall ESG scores of investors’ portfolios and reduce carbon risk, while maintaining core fixed income and equity exposures. All four have a carbon risk rating and a Northern Trust ESG Vector Score, which applies the anticipatory framework of the Task Force on Climate-Related Financial Disclosures (TCFD) on governance, strategy and risk management to all financial material ESG risks across the  Sustainability Accounting Standards Board’s (SASB) standards.

Hoya Capital Launches a Real-Estate Linked High-Dividend ETF

In a different twist on earning investment income, Hoya Capital has introduced a high dividend yield ETF designed to track 100 of the highest dividend-yielding real estate securities in the United States.

The Hoya Capital High Dividend Yield ETF (RIET) tracks the firm’s rules-based index, composed of high-yield common and preferred securities issued by real estate investment trusts (REITs) and real estate operating companies. The new ETF pays a monthly dividend and has an initial expense ratio of 0.25%, which will last until Sept. 30, 2022, when a 50% fee waiver could expire.