Arrow Funds introduces active fixed income ETF

Apr 6th, 2017 | By | Category: Fixed Income

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Arrow Funds has launched the Arrow Reserve Capital Management ETF (ARCM) on the Bats Global Markets Exchange. The actively managed ultra-short term fixed income portfolio seeks capital preservation with maximum income, offering investors an alternative to traditional money market funds and bank deposits.

Arrow Funds introduces active fixed income ETF

The Reserve Cash Management strategy may serve as a core cash balance or as a temporary strategy prior to building out a longer term investment allocation in other asset classes.

“The current market environment has heightened the demand for compelling cash management strategies,” said Joseph Barrato, CEO and Director of Investment Strategy at Arrow. “ARCM should appeal to financial advisors and institutional investors, including funds of ETFs, who are looking for a choice beyond lower yielding money markets and non-yielding cash positions.”

Sub-advised by Halyard Asset Management, the ETF invests in a variety of fixed income securities with a dollar-weighted average effective maturity under two years, including mortgage- or asset-backed securities. Eligible constituents must have a rating of Baa or higher according to Moody’s. ARCM’s exposure targets an average duration not exceeding eighteen months, which may vary based on the sub-advisor’s interest rate forecast.

The Reserve Cash Management strategy was started by Halyard’s Principals during the IPO dot-com era of the late 1990’s as a way to help Technology and Internet entrepreneurs manage their newly realized wealth. Taking an actively managed approach to cash assets may result in added value over the long term.

Over 20 years later, the principles guiding the strategy have not changed and, according to Halyard, are even more important during this current time of bank uncertainty and ultra-low interest rates.  The approach may serve as a core cash balance or as a temporary strategy prior to building out a longer term investment allocation in other asset classes for family offices, institutions, or HNW individuals.

“Regulatory changes in the money market space combined with a low interest rate environment have driven many investors to take a closer look at their cash management strategies,” said Michael Kastner, Principal at Halyard Asset Management. “For the past ten years we have worked closely with family offices and institutional investors to offer a strategy that seeks to provide a competitive yield and return, but with a lower level of volatility compared to the ultra-short term bond universe. We are now pleased to partner with Arrow to make the Reserve Capital Management strategy more widely available in a convenient ETF structure.”

The ETF has a total expense ratio (TER) of 0.38%.

It will likely compete with the PIMCO Enhanced Short Maturity Active ETF (NYSE: MINT). The $6.4bn fund seeks greater income and total return potential than money market funds by investing in short duration, dollar-denominated, investment grade debt securities. The average portfolio duration of MINT will not normally exceed one year. Its TER is 0.35%.

Alternatively, investors may wish to investigate the FlexShares Ready Access Variable Income Fund (NYSE: RAVI) which invests in a range of government, corporate, MBS/ABS, and commercial paper issued in developed markets around the world with a focus on the US. The fund’s TER is 0.25%.

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