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Bernstein Bandwagons

Photo by The New York Public Library on Unsplash

AllianceBernstein joins ETF industry at last

 

AllianceBernstein, one of Wall St’s biggest and final ETF holdouts, has thrown in the towel, launching its first two ETFs.

 

  • AB Ultra-Short Income ETF (YEAR)
  • AB Tax-Aware Short-Duration Municipal ETF (TAFI)

The two are actively managed and semi-transparent. Both buy fixed income securities with short duration profiles, providing investors with a way to earn income while taking less interest rate risk.

 

YEAR buys US government and investment-grade corporate bonds with durations less than 1 year.

 

TAFI buys municipal bonds – which have tax advantages in the US – while targeting durations of 1 – 3 years.

 

Year charges a 0.25% fee while TAFI charges 0.27%.


 

Bernie’s commentary – ETFs a functionality of every mutual fund

There’s a handful of massive financial services firms that never quite joined the ETF bandwagon. The more conspicuously absent names were Morgan Stanley, Wells Fargo, Capital Group, and Alliance Bernstein. As of the past few months, all these companies – except Wells Fargo – is now on board with ETFs. They’ve been won over to a larger degree by the “ETF rule” which allows actively managed funds to list as ETFs without providing transparency.

 

More generally, what I think we’re seeing is that ETFs are steadily becoming a functionality of every kind of fund. Even for legacy fund managers like AB, having your fund on exchange opens up new sales channels. And at the end of the day, ETFs are just open-ended mutual funds that trade on exchange.   

 

In terms of these specific launches, whenever the Fed raises rates, we see short-duration bond ETFs launch en masse. This is something myself and others at Ultumus were expecting as the rate hiking cycle kicked off. We saw the same thing in 2018. 

 

In terms of my own portfolio, I’m not the hugest fan of short duration fixed income ETFs. For one, I don’t believe I have any superior trading abilities around interest rate changes – so why not just buy a beta product for bonds like you do for shares? For two, the shortest duration, as we all know, is cash. And you can invest in cash with zero fees, which gives them an advantage.

 


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Bernie Thurston

Bernie Thurston is the founder and CEO of Ultumus, a leading provider of ETF and index data, calculation, and workflow solutions. With over 20 years of experience in financial technology, Bernie has been at the forefront of index and ETF innovation since 2003.

His finance career began at Markit, where as Managing Director for Equities he designed and developed products for index and ETF composition and dividend forecasting from 2003 to 2011. He then founded and led DeltaOne Solutions as Managing Director, building it into a global provider of index and ETF trading data and technology services. The company managed over 100,000 multi-asset class products before being acquired by Markit in 2015.

Following the acquisition, while working for an ETF issuer, Bernie identified fundamental issues in how index and ETF data was represented across the industry. This led him to found Ultumus in 2016, building solutions for ETF primary market operations. Under his leadership, Ultumus has grown into a market leader serving major financial institutions globally, with its ETF Order Management System (OMS) supporting create and redeem workflows worldwide and its PCF platform calculating and distributing portfolio composition files for ETF issuers across every major market.

Bernie sold Ultumus to SIX Group in 2021, where it continues to expand across Europe, North America, and Asia-Pacific. Known for building lasting teams and leveraging cutting-edge technology, Bernie is focused on establishing Ultumus as the backbone of the global index and ETF industry through standardisation and automation.

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