Thanks to the QE taper and rising bond yields, many in the fixed
income world have been hit hard. 2013 was the first year in quite
some time that losses were seen in bond portfolios, leading some to
abandon the space, or at least focus on lower duration securities.
This look to lower duration bonds could be ideal for those who want
to stay invested in bonds, but are worried about interest rate
risks. While a number of products have cropped up to give
investors exposure to this market, a new actively managed fund that
just hit the market might be an interesting option for some seeking
a different way to play this segment.
The new fund comes to us from AdvisorShares, and trades under the
name of the
Sage Core Reserves ETF
with the symbol of
. The product will not follow an index, but looks to preserve
capital while maximizing income (see
Are Short Term Bond ETFs the New Safe Haven?
What makes HOLD different?
While this dual mandate might sound similar to many others out
there, HOLD looks to put a slight spin on the broad fixed income
market. The managers have flexibility in terms of what types of
fixed income securities they buy, as well as the credit quality
Additionally, though the average duration is expected to be less
than one year, the fund does have the ability to buy slightly
longer duration securities, and it can position itself along the
yield curve based upon its market outlook. Managers can also target
certain segments or securities, so the fund does look to be pretty
The product is also going to be pretty cheap for an actively
managed fund, coming in at just 0.35% a year in fees. Still, this
is somewhat pricey compared to other, index based funds in the
ultra-short term space, as some have fees approaching just 10 basis
points a year (also read
Guide to the 25 Cheapest ETFs
"The threat of rising interest rates and a strong investor appetite
for yield may present limited options for efficient ways to access
and manage cash holdings," saidNoah Hamman, chief executive officer
of AdvisorShares in a press release. "We believe HOLD delivers a
compelling investment solution with the benefits of a liquid,
transparent and efficient actively managed ETF by leveraging Sage's
well-established track record and expertise as a fixed income
How does it fit in a portfolio?
The fund looks to be a solid choice for those who want to greatly
reduce their interest rate risk, but don't want to sacrifice yield
opportunities completely. This is especially true considering that
it focuses on a variety of short term bonds (both government and
corporate) something that many other short-term securities do not
do (also see
Inside the New iShares Ultra Short Term Bond
The fund will probably not be a great choice for those seeking
truly robust yields, as Treasury bond purchases and the general low
risk nature of bonds maturing in less than one year looks to keep
current income relatively low. HOLD may also suffer from wider bid
ask spreads, at least initially, though this could change if assets
ramp up over the next few months.
There are a number of short-term debt options currently trading in
the market, including the ultra-short focused
, though floating rate funds like
may also be considered competitors, due to their low duration risk
all the Ultra-Short Term ETFs here
Additionally, senior loan ETFs could be a foe, as these offer
decent yields, though they are junk debt securities. A top name in
this space is the
PowerShares Senior Loan ETF (
, a fund that has over $6.5 billion in AUM, and it has a 30-Day SEC
yield approaching 4%.
There are a lot of options in the short-term bond market, and it
could be hard for HOLD to stand out. The fund may not have the same
level of liquidity to start, while its expense ratio, though
competitive, may be a bit high compared to some choices out there.
However, thanks to its actively managed approach and flexible
strategy, it may be a better choice in the ultra-short fixed income
market. If this technique holds up, this fund may become a favorite
among investors seeking low risk bond exposure, though it will
certainly have a tough battle in order to achieve a big asset base
in this tough corner of the ETF world.
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