With the Fiscal Cliff fast approaching and some shakiness
appearing on the horizon for the markets, many have been taking a
more low risk technique to investing. Short-term securities and
precious metals have been very popular in this environment, and
they could continue to remain in focus if uncertainty continues
to take hold of the markets.
In this climate of increased demand for low risk products,
AdvisorShares, a leader in active
ETFs
, has thrown its hat into the ring offering up a low risk choice
of its own. This proposed fund, which was revealed in a
recent SEC filing
, looks to trade under the ticker of HOLD and offer up low risk
exposure for those looking to preserve capital while maximizing
income (see
Looking for Safety? Try These Money Market
ETFs
).
This could make the product an excellent choice for those
looking for a new active management take on the lower risk slice
of the market while still having a watchful eye of a manager in
order to keep risks at their minimum. However, without tracking
an index, fees are likely to be much higher (although these were
not released in the initial filing), a situation that could
greatly eat into overall returns in today's low rate
environment.
HOLD's Methodology
The proposed fund looks to one day follow fixed income
securities from a variety of issuers, so long as they are
investment grade and U.S. dollar-denominated. While the average
duration will change, it is expected that it will not exceed one
year, helping to keep sensitivity to an absolute minimum (read
the
Comprehensive Guide to Money Market ETFs
).
This approach looks to zero in on the safest possibly fixed
income securities out there, giving investors peace of mind over
their bond investment. However, the low duration and low risk
will likely result in depressed income levels, suggesting that it
may not be much of a yield destination for income-starved
investors.
ETF Competition
Investors should also note that there are already a few ETFs
that will be targeting this short-duration space. Arguably the
biggest competitor is the
PIMCO Enhanced Short Maturity Strategy ETF (
MINT
)
, a product that charges investors 35 basis points a year.
This product has over two billion in AUM, and is easily one of
the most popular products in the space. However, investors should
note that the yield is below 0.7% in SEC 30-Day terms while the
maturity is about one year, suggesting that while it will be
nearly risk free, it doesn't offer up much in terms of current
income (also read
FlexShares Debuts Active Money Market ETF
).
Given how successful MINT has been, and the similar focus of
the product when compared to HOLD, AdvisorShares' fund could have
an uphill battle in terms of accumulating a decent asset base if
it is ever approved. This is of course unless HOLD can find a way
to be competitive in terms of after fee yield, or if the proposed
fund can offer up a solid level of price appreciation beyond its
entrenched PIMCO counterpart.
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PIMCO-E SMETF (MINT): ETF Research Reports
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