Volatility has shaken up the markets, but ETF investors have a number of strategies to help guide them through more troubled times.
“So we’ve seen a tremendous amount of ETF flow into the ultra-short space this year,” Matthew Collins, VP and Co-Head of ETF Strategy for PGIM Investments, said at the Charles Schwab IMPACT 2018 conference.
For example, at PGIM Investments, their first ETF, the PGIM Ultra Short Bond ETF (NYSE ARCA: PULS), which launched back in April, has gathered $156 million in assets under management on the increased demand for ultra-short-duration debt exposure that helps fixed-income gather a decent yields with minimal risk.
“Short-duration ETFs – both active and passive. A lot of cash flow because clients are looking for protection – not just rates but also equities,” Collins said.
PULS’s risk-managed and short duration approach is designed to help investors hedge against rising rates and enhance or diversify a cash management strategy.
The fund is actively managed and competitively priced at 15 basis points, or 12 basis points lower than the average active ETF in its category. The active ETF also tries to generate a diversified source of alpha through high-quality positioning that covers consistent and sustainable sources across investment-grade sectors to help maintain stability of principal.
The ETF’s portfolio follows an ultra-short duration, risk-managed approach that helps fixed-income investors to hedge against rising rates while enhancing or diversifying a cash management strategy. When you look at this strategy, it’s not cash, but it must be close from a liquidity management and duration perspective, and that’s how they plan to manage it.
PULS shows a 2.67% 30-day SEC yield and a 0.2 year duration – so a 1 percent rise in interest rates would only translate to a 0.2% decline in the fund’s price.
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CORRECTION: updated SEC yield