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.
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.