Page 16 - Investment Advisor June 2021

ETF ADVISOR

By Bernice Napach

Market for Ultra-Short Active Bond ETFs Grows

Also, could there be interest in a new cryptocurrency ETF with a twist?

ompetition is heating up in ANOTHER CRYPTO ETF TO MARKET?
the ultra-short bond ETF In another twist on the rush to spon-
Cspace. Less than four weeks sor a cryptocurrency ETF, Alpha
after Vanguard launched an ultra-short Architect has filed an application with
bond ETF — its first active bond ETF — the SEC to launch an ETF that invests in
BNY Mellon announced it has filed an companies associated with the mining
application with the Securities and of cryptocurrencies rather than in
Exchange Commission to introduce its cryptocurrencies themselves.
own ultra-short bond ETF. The Alpha Architect ETF Trust plans
Ultra-short bond ETFs optimize to invest at least 80% of its assets in the
operating cash and strategic cash needs equities of companies “actively involved
of investors, bridging the gap between in the entire spectrum of cryptocurrency
money market funds and short-term mining, from producers of computer chips
bond funds — with more yield than bond ETFs are also a way for fund com- (foundries), to manufacturers of computer
the former and less volatility than panies to use their in-house expertise to equipment (manufacturers),” to directly
the latter, said Stephanie Pierce, CEO adjust bond allocations as market condi- investing in market participants creating
of ETF, Index, and Cash Investment tions change, including interest rates, cryptocurrency themselves (miners), but
Strategies at BNY Mellon Investment Rosenbluth said. it will not invest directly in cryptocurren-
Management. They are especially use- Ultra-short bond ETFs “make sense cies. Its subadvisor will screen companies
ful as an alternative to prime money … in a low-interest-rate environment,” based on environmental, social and gover-
markets, which may be subject to new, said Dave DiPetrillo, head of North nance factors, according to the filing.
additional regulation, she added. American product development BNY Empowered Funds LLC, which does
The BNY Mellon Ultra Short Mellon Investment Management. “In a business as Alpha Architect, will be the
Income ETF Bond ETF, like the recent low-rate environment, clients are trying investment advisor to the fund, and
Vanguard entry and other ETFs in this to balance liquidity, duration risk and New Gen Minting LLC, known as Viridi
space, will be actively managed. It will yield-seeking.” Funds, will serve as the subadvisor to
invest in a variety of ultra-short-term He added that over $56 billion is in the fund. Quasar Distributors LLC will
fixed income securities, but invest- ultra-short active bond ETFs, so “the be the distributor.
ments will be concentrated in the bank- clients’ demand is there.” Alpha Architect has two relatively
ing industry, with at least 25% of net Year-to-date through March 31, assets small ETFs (under $250 million each) —
assets invested in domestic or dollar- in ultra-short-term bond ETFs totaled the Alpha Architect U.S. Quantitative
denominated foreign bank obligations. $98.5 billion while assets in their mutual Val ETF (QVAL) and the Alph Architect
Assets will have an average A credit fund counterparts totaled $246 billion, International Quant Val ETF (IVAL).
rating. Fees were not disclosed in the according to Morningstar. Actively man- Morningstar gives both ETFs a negative
SEC filing. aged funds accounted for 55% of the rating with one star for the domestic
Ultra-short-term bond ETFs have ETFs and 98% of the mutual funds. version and two stars for the interna-
been “extremely popular” and exam- The SEC in early February requested tional fund. Its analysis of both funds
ples of where “active management has comment on potential changes to regula- notes “the questionable investment pro-
worked,” said Todd Rosenbluth, direc- tion of money market funds due to heavy cess and a weak portfolio-management
tor of ETF and mutual fund research at withdrawals from U.S. prime money mar- team” though they have a competitive
CFRA. “They are a good alternative to ket funds — which invest in short-term price compared to peers.
money market funds if you’re willing to company debt, including commercial
take on a slight bit of risk.” paper — and from tax-exempt money Bernice Napach can be reached at Adobe Stock
Actively managed ultra-short-term market funds in March 2020. [email protected].

14 INVESTMENT ADVISOR JUNE 2021 | ThinkAdvisor.com