Pensions Adopt Alternative Bond Strategies
With strong market returns in recent years, many pension plans have experienced improvements in their funding status, said Rob Waldner, chief strategist at Invesco Fixed Income. “As such, there is good demand for long duration corporate bonds as many of these plans seek to de-risk, matching their pension liabilities with long-dated assets,” he said.
Growth in the near term is likely to exert upward pressure on rates, particularly at the short end of the yield curve as the market likely challenges the Fed’s forward guidance on interest rate policy. “Having said that though, we believe there are longer term structural forces at work that will likely keep long term rates from moving up substantially – mainly, aging global demographics,” Waldner said.
For pension plans that wish to have a growth component to their investment mix beyond hedging their liabilities, Invesco recommends non-traditional fixed income strategies that invest across the universe of fixed income opportunities.
“These multi-sector strategies seek to generate returns from a mix of asset allocation and alpha generation from security selection,” said Waldner. “We think this type of active management is particularly important given current global fixed income valuations.”
First Trust, the sixth-largest U.S. issuer of exchange traded funds, has launched the First Trust Strategic Income ETF, a multi-strategy fund that generates income through positions in various asset classes, including high-yield bonds and senior loans, mortgage-related securities, preferred securities, international sovereign bonds, master limited partnerships (MLPs) and energy infrastructure companies, and dividend stocks.
The fund will seek to achieve its investment objectives using multiple investment categories, targeted investment strategies and specialized management teams, said First Trust in a statement.
“Finding ways to generate income for clients, while discerning the proper balance between income and risk, is one of the toughest challenges facing financial advisors today,” said Ryan Issakainen, senior vice president, exchange-traded fund strategist at First Trust. “This ETF may provide an alternative to traditional fixed-income funds, investing in a diversified group of income-producing fixed-income and equity asset classes, each actively-managed by a talented team of specialized asset managers.”
Increased demand and the potential for a more favorable regulatory environment could make actively managed ETFs a $500 billion asset class by 2020, according to a report by SEI Investments.
Actively managed ETFs have seen significant growth in the number of products offered and assets under management over the past year and continue to gain popularity as an investment vehicle, according to SEI. The active ETF market has grown by nearly 30 products and more than $2.5 billion assets under management in the past 12 months.
Since 2008, active ETF assets have comprised 7 percent of all ETF assets under management in the U.S. Additionally, with more than 50 active ETFs either in registration or, if already approved, waiting to come to market, there is no noticeable slowdown in this expansion.
Despite this growth, which has been accelerated in the past few years by an SEC statement allowing active ETFs to utilize derivatives, a number of challenges remain for investment managers when launching these funds.
“We have been looking at the rise of actively managed ETFs for quite some time and we have every reason to believe that growth will continue,” said John Alshefski, senior vice president of SEI’s Investment Manager Services division, in a release. “While some managers may not currently realize the operational impact of implementing these strategies, as they continue to address these challenges and restrictions continue to loosen, we could be in for an explosion of active ETFs hitting the market in the next few years.”
Featured image via Stephen VanHorn/Dollar Photo Club
Corporate Sustainability Reporting Directive elevates sustainability information to same level as financial.
Essentia analyses data to create behavorial “nudges” for fund managers' investment decisions.
With Adam Conn, Head of Trading, Baillie Gifford
Partnership will develop a suite of U.S.-listed, physically backed ETFs.
The addition of Essentia behavioral analytics solutions is an extension of Northern Trust Whole Office.