We learned from website IndexUniverse that Federated Investors has filed to launch Federated Active UltraShort Fixed Income ETF. According to the filing, "The investment objective of the Initial Fund will be to seek to outperform the 3-month LIBOR primarily by investing in fixed and floating rate fixed income instruments. The Initial Fund may invest in investment-grade and non-investment-grade corporate bonds, U.S. government securities and U.S. government agency securities (including mortgage-backed securities issued or guaranteed by U.S. government sponsored enterprises ('GSEs')) with a maximum effective duration of two years or less. The Initial Fund will only invest up to 20% of its total assets in non-investment-grade securities."
Since 2007, there have been a number of launches in the "enhanced cash" ETF space, though none have gained a substantial amount of assets to date. (Search for "ETF" on www.cranedata.com to see our previous Crane Data News stories. These include: More Ultra-Short ETFs on the Way: SPDR Lehmans from SSGA (3/13/07), Bear Stearns Launching Cash-Plus ETF, Bear Current Yield Fund (YYY) (5/2/07), "Dreyfus Lends Its Clout to Foreign Bond, Cash ETFs" writes WSJ (1/29/08), SSgA Files to Launch SPDR SnP Commercial Paper, First "Cash" ETF (6/17/08), Near Cash ETFs Rising PowerShares VRDO PVI Breaks 1 Billion 10/2/09, Body Count Rises in Enhanced Cash; Bear YYY ETF Exits Stage Left (9/11/08), Guggenheim Launches Enhanced Ultra-Short Bond ETF, Latest Cash+ (6/3/11), and PIMCO Joins Growing Near-Cash ETF Marketplace with Launch of MINT (11/17/09).
IndexUniverse says, "The fund would join index ETFs like Vanguard's Short-Term Bond Fund (BSV), the SPDR Barclays Capital 1-3 Month Treasury ETF (BIL) and a roster of iShares offerings in the short-term bond market. But it looks similar to the Pimco Enhanced Short Maturity Strategy (MINT), which has gathered more than $1.3 billion in assets since its November 2009 inception."
A recent McKinsey & Company report entitled, "The Second Act Begins for ETFs, says, "If active ETFs do take hold, we expect they will start from the fixed-income side of the market. Fixed-income funds are less vulnerable to front-running and therefore face less transparency risk. One segment of traditional fixed income funds that may be particularly exposed to active ETFs in the near term is the $3 trillion money market fund business. Money market funds lost their safe haven allure when several funds 'broke the buck' during the 2008 credit crisis, reminding investors that maintaining a $1 net asset value (NAV) was not guaranteed. This realization has opened a window of opportunity for variable NAV products with risk profiles similar to money market funds, but significantly lower expense ratios and markedly higher investment yields. Pioneer products in this category have already started gaining traction in the market. However, for ETFs to compete effectively with and match the scale of money market funds in the retail market, the current low to no commission environment among broker-dealers would have to remain in place for ETFs, since customers would be moving money in and out of these products frequently."
