BNY Mellon Launches Ultra Short Bonds ETF, 'BKUI'

On Wednesday, BNY Mellon Investment Management announced the launch of their first active management ETF, the BNY Mellon Ultra Short Income ETF (BKUI), on the NYSE. The fund offers exposure to increased yield with less volatility than a short-term bond might potentially and offers the possibility of increased returns over money market funds.

Given the current low rate environment, an ultra-short bond ETF seeks to address the growing demand for increased yield with less volatility than a short-term bond fund and potentially additional return over money market funds,” said John Tobin, Chief Investment Officer of Dreyfus Cash Investment Strategies, the fund’s sub-advisor. “The BNY Mellon Ultra Short Income ETF is a natural extension of our existing suite of liquidity solutions, and we’re especially excited to bring our ultra-short income capabilities to the ETF market.”

The fund seeks to provide high current income while offering exposure to low volatility. The securities carried by the fund are concentrated in the banking industry, and 25% of net assets are normally invested in domestic or dollar-denominated foreign bank obligations.

BKUI seeks to maintain an effective duration of a year or less, but in cases of high volatility in the markets, durations could be longer. Duration is a marker of an investment’s “interest rate risk.” The fund doesn’t carry any restrictions on its average effective portfolio maturity or on the effective duration or maturity of the fixed income securities it may invest in.

Putting BKUI To The Test

The rating of BKUI, under normal market conditions, will be A at a minimum, with investments carrying a rating of Baa3 on Moody’s; BBB- on the S&P; or BBB- on Fitch. Additionally, or else are in the top or second tier of ratings for short-term investments by any of the aforementioned three or an equivalent nationally recognized statistical rating organization.

BKUI is sub-advised by Dreyfus Cash Investment Strategies and uses a top-down and bottom-up approach, and offers downside protection through a combination of overnight investing and investing in short-term, high liquidity securities.

The portfolio managers seek to find undervalued bonds or the view concerning the bond is to a bearish extreme, as well as invest in bonds when research has indicated that the portfolio needs to rebalance to favor a particular security. The portfolio managers use their expectations concerning future interest rates compared to the current yield curve to manage the fund’s positioning. The yield curves compare interest rates of bonds with the same credit ratings but different maturities.

“Our mission in entering the ETF marketplace last year was to make our leading investment capabilities accessible to a broader range of clients through the ETF structure,” said Andy Provencher, BNY Mellon Investment Management Head of North American Distribution. “We have an ambitious product pipeline of active ETFs that we’re excited to bring to market over the next several months. Continuing to launch active ETFs strengthens the suite of solutions we’re able to offer clients and deepens our relationships by meeting their evolving needs for more low-cost, tax-efficient investment strategies.”

BKUI carries an expense ratio of 0.12%

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