(Upated to include comments from SSgA's head of U.S. Portfolio Management.)
State Street Global Advisors (SSgA), the fund sponsor behind the SPDR ETFs, today launched its first three actively managed ETFs, marking its entry into a niche of the market that is drawing increasing attention from major ETF providers.
The three new funds represent half of six active funds SSgA originally filed for last April. The funds coming out today emphasize inflation-protected asset allocation strategies. The investment approaches that are described in the prospectus include using exchange-traded products, most of which are index securities.
At a press conference in Manhattan announcing the launch, Chris Goolgasian, SSgA head of U.S. portfolio management, said that the new funds, which mix equities with bonds, are meant to provide higher return alternatives to the $1 trillion that fled to the security of the bond market in the wake of the 2008 credit crisis, much of which is now losing ground to an inflation rate of 3 percent.
“A lot of that money has gone into bond funds with 2 percent yields,” said Goolgasian.” But it isn’t really safe when inflation is greater than returns.”
The three new funds , their tickers and expense ratios are as follows:
- SPDR SSgA Multi-Asset Real Return ETF (RLY - News) comes with a total net expense ratio of 0.70 percent. This fund seeks both capital appreciation and current income through investment in exchange-traded products that include securities focused on inflation protection; real estate; commodities; and companies in the natural resources space.
- SPDR SSgA Income Allocation ETF (INKM - News) comes with a total net expense ratio of 0.70 percent. This ETF is a total return fund focusing on income- and yield-generating assets including U.S. and international equities; debt securities; debt/equity hybrids such as preferred stocks and convertible bonds; as well as real-estate securities.
- SPDR SSgA Global Allocation ETF (GAL - News) comes with a total net expense ratio of 0.35 percent. The fund seeks current income and capital preservation, with a secondary emphasis on capital appreciation. The active ETF will provide “balanced exposure” to U.S. and international debt and equity, with the balance shifting over time.
More than 99 percent of the $1.174 trillion in assets under management are in passive funds and a good portion of the active $5.2 billion ETF money actually is in one fund, the $1.56 billion Pimco Enhanced Short Maturity Strategy Fund (MINT - News). Active funds, which depend upon an advisor’s acumen for their performance, generally have produced disappointing performance in comparison to passively managed ETFs, which track an index, as Standard ' Poor’s SPIVA report rarely fails to show.
However, ETF giants such as iShares, which just won regulatory approval last March to develop active ETFs, are building out the active space with a variety of funds, many of which are oriented toward the more illiquid bond market that generally presents more challenges to passively managed funds.
One of the distinguishing aspects of the new SSgA funds is that they add an active management element to the asset allocation space, an arena generally dominated by passive funds, which focuses on diversified exposure schemes to capture growth and income in the long run. Currently, there only are 27 asset allocation ETFs out of more than 1,400 U.S.-listed ETFs according to IndexUniverse’s “ ETF Fund Finder .”
The reason that there are not more asset allocation providers, Goolgasian said, is that it demands extensive resources on the part of a firm to conduct reviews across the globe of a varied group of asset classes.
In setting up its asset allocation ETFs, Goolgasian said that SSgA is drawing on the expertise of its Investment Solutions Group, which has $20 billion in tactical business strategies, similar to those that will be utilized in the active ETFs, and has beaten its benchmark for eight of the last 10 years.
SSgA uses its Market Regime Indicator model that takes into account VIX, credit spreads and currency volatility to help determine asset allocation. “This is a forward-looking model,” Goolgasian said. “However, when our views differ from the indicator, we don’t follow it.”
Several weeks ago, AdvisorShares filed paperwork to bring to market an actively managed ETF similar to the SSgA funds.
The AdvisorShares Pring Turner Dow Jones Business Cycle ETF (DBIZ) will own everything from U.S. and foreign equities to high-quality corporate debt to other ETFs and ETNs, keeping its asset class and sector allocations flexible to reflect the market’s changing business cycle.
With bond market returns relatively low and investors still trying to control risk in the wake of the 2008 financial crisis, asset allocation strategies are a logical compromise, according to Goolgasian.
“We are not going to see investors going back 100 percent into equities,” he said. “We are in a bullish market for tactical solutions because this [risk aversion] is going to be with us for a long time.”
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