Among the first pioneers in the short-duration exchange traded funds space, the actively managed FlexShares Ready Access Variable Income Fund (RAVI) can help fixed-income investors with risk-management, income generation and liquidity management.
RAVI may be something for investors whom are looking for a little more yield than what’s provided by money market funds, but don’t want to move too far out of the short-duration end of the yield curve.
Investors are “compensated for taking risk beyond money market funds but with less duration risk than short-term bond funds,” Mark Carlson, senior investment strategist for FlexShares Exchange Trade Funds at Northern Trust Asset Management, told ETF Trends in a call.
Carlson explained that the traditional money market fund landscape has changed since the financial crisis as regulatory hurdles fettered this fixed-income segment. In response, he said RAVI was born out of the pending regulations following the financial crisis that many money market funds faced, adding that “we were confident money market funds would be constrained.. and that came to fruition.”
With the greater regulatory scrutiny, money market funds are now constrained in how far off they can go up the yield curve, with most now stuck to the very conservative, ultra-short-term.
Nevertheless, institutional and individual investors, financial advisors and corporate treasuries, among others, still expect to find ways to maintain their principle while generating some extra yield with their cash positions. Some have ventured further away from the ultra-conservative plays and looked to so-called short-term bond funds with an effective duration of about one-and-a-half years.
“There was a gap between three months to one-and-a-half years that was not being adequately addressed,” Carlson said.
As a way to help investors better target this ultra-short-term segment by enabling them to better preserve capital and still generate some attractive yield on the side, FlexShares has offered the actively managed FlexShares Ready Access Variable Income Fund since 2012. RAVI shows a current effective duration of 0.59 years and a 2.61% SEC yield.
The fund primarily invests in investment-grade debt securities with a heavy tilt toward U.S. corporate bonds. According to the fund prospectus, the ETF may also invest, without limitation, in fixed-income securities and instruments of foreign issuers in developed and emerging markets, including debt securities of foreign governments, and may invest more than 25% of its total assets in securities and instruments of issuers in a single developed market country. RAVI can hold up to 20% of its total assets in fixed-income securities and instruments of issuers in emerging markets.
For more information on RAVI, visit https://www.flexshares.com/funds/RAVI.