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Active ETF Takes Gets Tactical in Hunt for Income


Actively managed exchange traded funds still represent just a sliver of the overall ETF universe, but some of last year’s most successful ETF launches were active funds. That includes the WBI Tactical Income Shares (WBII) .

The WBI Tactical Income Shares debuted in August as part of a suite of 10 actively managed ETFs from WBI Investments, a New Jersey-based asset manager and issuer of several mutual funds. WBII has been an important WBI’s ascent up the actively managed ETF totem pole. By the end of 2014, WBI had raised $1.1 billion in ETF assets, accounting for half the growth in the actively managed space last year, according to a statement issued by the firm.

WBII’s objective is to deliver steady income while offering bear market protection coupled with the ability to capture a significant part of a bull market’s upside.

“WBI’s proprietary bond model strives to reduce interest rate risk on core bond holdings in an effort to protect invested capital. The goal is to actively shorten duration to minimize loss as interest rates rise, or to lengthen duration to increase yield and potential for capital gain as interest rates decline,” according to the issuer.

With Treasury yields continuing to slide in 2015, WBII has offered modest upside due to its nearly 25% weight to various holdings of U.S. government debt, including a 6.9% weight to short-term Treasuries. The fund also employs an ETF of ETFs to some of its other holdings, which include four Guggenheim BulletShares defined maturity ETFs as well as the PIMCO Total Return ETF (BOND).

Defined-maturity bond funds typically buy bonds that mature in the year the ETF will terminate, ensuring that investors can collect the bonds’ face value at maturity, along with a steady income stream along the way. Investors are meant to buy-and-hold these securities until maturity. In contrast, a regular bond ETF runs the risk of losing its original principal if interest rates go up, depending on the bond ETF’s effective duration. [How Defined Maturity ETFs Fit Into a Portfolio]

“WBII has outperformed the fund’s blended benchmark by 1.59% (1.10% vs.-0.49%). From inception (8/27/14) through year-end (12/31/14) WBII also outperformed the fund’s blended benchmark 0.66% vs. -0.80%,” according to WBI. “Most importantly, WBII had low bear correlation (0.28) relative to the index, which helped to produce a Sharpe Ratio of 1.09 since inception. If you are looking for a flexible income ETF, WBI Tactical Income may be an alternative that has lower volatility, correlation, and risk to capital than a passive approach.”

The ETF’s equity holdings currently include Waste Management (WM), General Motors (GM) and Johnson Controls (JCI). [An Active Income Approach]

At the end of the third quarter, WBII had nearly $147 million in assets under management, an impressive sum when considering more than 90 of the roughly 200 ETFs launched last year did not amass $10 million in assets by the end of the year. [Another Decent Year for New ETFs]

WBI Tactical Income Shares