FlexShares Debuts Active Money Market ETF - ETF News And Commentary
12 October 2012 - 12:48AM
Zacks
FlexShares, the ETF division of Northern Trust, is beginning to
become a formidable player in the exchange-traded fund world. The
firm has several ETFs in both the broad equity and the bond world,
four of which have amassed over $100 million in assets in their
short times on the market.
As of late, the company appears to be expanding once again as
the company launched two new ETFs in late September, the
ex-US Market Factor Tilt Index ETF (TLTD) and the
Emerging Market Factor Tilt Index ETF (TLTE).
These two new products help to round out the company’s lineup of
factor tilt funds, acting as a nice complement to the
American-focused TILT while also bringing the
total offering up to six products.
Yet it now looks as though FlexShares is by no means done
expanding in the ETF world, as evidenced by its latest ETF launch
here in October. The company has just revealed its newest fund the
Ready Access Variable Income Fund (RAVI), bringing
FlexShares’ lineup up to seven funds overall (read Looking for
Safety? Try These Money Market ETFs).
However, it should be noted that RAVI represents a rather large
departure for FlexShares as this product is the first for the
company that targets the money market world. It also marks
the first product for the company that utilizes an active
management technique, although it is worth pointing out that
despite the active management the product still costs a low 25
basis points a year after fees.
RAVI ETF in focus
The new fund looks to help cash investors try to maintain
liquidity and reach for higher returns, without excessive
volatility. RAVI features a variable net asset value and can invest
beyond the limitations of a traditional money market fund. The
portfolio consists of investment grade debt securities from around
the world, including sovereign and corporate debt from a variety of
nations (see Five Great Global ETFs for Complete Equity
Exposure).
In terms of exposure, the fund can only put 25% in any single
country, while emerging markets can only comprise 20% of the assets
as well. Meanwhile, asset backed securities will not make up more
than 10% of assets while what the fund terms as ‘illiquid’
securities are not more than 15% of the product either.
Money Market ETFs
This new RAVI ETF looks to offer up an intriguing alternative to
some of the other choices already in the money market ETF space.
Still, the fund looks to face some intense competition from a
variety of companies, so success is by no means guaranteed (read
the Comprehensive Guide to Money Market ETFs).
Two of the most popular—and similar to RAVI—are the
Guggenheim Enhanced Short Duration Bond ETF (GSY)
and the PIMCO Enhanced Short Maturity Strategy Fund
(MINT). Both of these products also utilize an active
approach and focus in on short-duration securities for their
exposure.
Currently, both of these funds are zeroing in on American bonds
that are ultra-safe, although cash does make up a big chunk of both
GSY and MINT. Yields aren’t much for either fund, but with these
low duration securities you are really paying for safety as opposed
to the high payouts (see Three Excellent Dividend ETFs for Safety
and Income).
Furthermore, investors should note that, combined, the two
products have more than $2.2 billion in AUM (most in MINT), while
volumes are decent for both as well, suggesting that RAVI could
have some difficulty finding its niche in this tough market. Still,
RAVI does manage to—just barely—beat out its entrenched competitors
on a fee front, suggesting that it could be the low cost choice in
the space.
The product costs two basis points less than GSY and a full ten
less than MINT, giving it a decided advantage on the fee front.
While these might seem like small differences at first glance, in
today’s low rate environment, every basis point counts, suggesting
that RAVI may be able to attract a decent following among investors
seeking an ultra-safe way to play the markets.
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GUGG-EN SH DUR (GSY): ETF Research Reports
PIMCO-E SMSF (MINT): ETF Research Reports
(RAVI): ETF Research Reports
FLEXS-MRN USMFT (TILT): ETF Research Reports
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