Already a rising player in the space for equity-based actively managed exchange traded funds, T. Rowe Price is looking to carry its success over to the fixed income landscape.
In a new filing with the Securities and Exchange Commission (SEC), the Maryland-based fund giant revealed plans for three active bond ETFs. The proposed funds are as follows: the T. Rowe Price Total Return ETF, T. Rowe Price QM U.S. Bond ETF, and T. Rowe Price Ultra-Short Term Bond ETF.
To date, the issuer is finding success with active semi-transparent ETFs. Its lineup of such funds is comprised of the T. Rowe Price Blue Chip Growth ETF (TCHP), T. Rowe Price Dividend Growth ETF (TDVG), T. Rowe Price Growth Stock ETF (TGRW), and T. Rowe Price Equity Income ETF (TEQI).
While the issuer hasn’t pushed into bond ETFs as of yet, it has substantial fixed income assets and experience. As of the end of the first quarter, T. Rowe Price had nearly $173 billion in bond assets under management and it’s been in that space for 45 years, according to the issuer. The company has 227 dedicated fixed income professionals.
Looking at the products the issuer filed plans for, the Ultra Short-Term Bond ETF will hold short-term investment-grade corporate and government debt. That can include mortgage-backed securities (MBS) and municipal bonds. The fund’s managers can allocate up to 10% of the assets to investment-grade dollar-denominated debt from foreign issuers.
The Total Return ETF has a wider purview and can embrace high-yield bonds as an avenue for seeking credit opportunities and potentially boosting income.
“The fund may invest up to 35% of its net assets in corporate bonds and other debt instruments that are rated non-investment-grade (below BBB, or an equivalent rating), commonly known as junk bonds or high yield bonds, by each of the rating agencies that have assigned a rating to the security or, if unrated, deemed by T. Rowe Price to be non-investment-grade,” according to the SEC filing.
The fund can add bonds of any credit rating and it can allocate up to 20% of its weight to dollar-denominated debt from foreign issuers.
The “QM” in the QM U.S. Bond ETF stands for “quantitative model.” The fund’s managers can use quantitative models to overweight or underweight certain fixed income segments relative to the widely followed Bloomberg Barclays Aggregate Bond Index.
The regulatory filing doesn’t feature expense ratios or tickers for the proposed ETFs, indicating launch dates aren’t imminent.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
