By Todd Rosenbluth, CFRA
In the first quarter of 2018, actively managed fixed income funds pulled in $26 billion of new money, just slightly ahead of the $25 billion gathered by passively managed bond funds, according to Bloomberg data. This is in sharp contrast to the equity fund space, where active funds shed $13 billion, bleeding additional assets to passive fund alternatives ($64 billion). Yet, while many investors think of active fixed income in a mutual fund wrapper and passive in an ETF one, fund flows suggest the lines are blurred.
Investors added $23 billion to actively managed bond mutual funds in the first three months of 2018, down 31% from the prior quarter and 50% from a year ago. Meanwhile, actively managed bond ETFs pulled in $3.3 billion, up 21% from the December quarter and 38% from a year ago. In recently months, investors favored ETFs that incurred minimal interest sensitivity, as rising interest rates remained top of mind.
At $8.8 billion in total assets, PIMCO Enhanced Short Maturity Active ETF (MINT) is the largest of the active ETFs. During the first quarter the fund pulled in $541 million. Though MINT has a duration of just 0.5 years, the investment-grade focused ETF sports a 1.6% 30-day SEC yield. In independently rating bond ETFs and mutual funds, CFRA uses yield, credit quality and duration as a three-legged stool to identify where the strong risk-adjusted yield can be found.
MINT’s top overall CFRA ETF rating is also due to its tight penny bid ask spread, 0.35% expense ratio and bullish technical trends.
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Though the $3.5 billion in assets iShares Short Maturity Bond ETF (NEAR) is smaller than MINT, it had stronger inflows in the first quarter, with the addition of $619 million. NEAR’s duration and yield are nearly the same as MINT; however, NEAR has a lower 0.25% net expense ratio. CFRA’s research indicates a neutral technical rating input.
Other short-term actively managed bond ETFs to experience net inflows in the first quarter include First Trust Enhanced Short Maturity ETF (FTSM) and the newly renamed PowerShares Ultra Short Duration Portfolio (GSY); GSY was managed in the first quarter by Guggenheim.
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CFRA rates these active ETFs against the broader ETF universe, which includes many lower-cost index-based products. Separately, we rate actively managed taxable bond funds against the broader bond mutual fund category.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.