Aware Asset Management has partnered up with Tidal ETF Services to launch its first exchange traded fund, an ultra-short duration bond strategy to help investors access a liquid cash alternative to preserve capital.
On Tuesday, Aware Asset Management launched the actively managed Aware Ultra-Short Duration Enhanced Income ETF (NYSEArca: AWTM), which has a 0.23% expense ratio.
“We developed this ETF as an alternative to earnings credits, commercial paper, and money market funds,” John Orner, President and CIO, said in a note. “We believe we have built a liquid, diversified, cost-effective solution that seeks to preserve capital while maximizing current income.”
AWTM tries to achieve a gross yield of 0.75% to 1.00% over the most recently issued 3-month U.S. Treasury Bill Yields. Specifically, the ETF invests in U.S. dollar-denominated investment-grade fixed-income and floating-rate bonds. The fund may include instruments issued by both U.S. and non-U.S. (including emerging markets) government and private sector issuers, including asset-backed securities, according to the fund prospectus.
“Generating high returns with low risk is our objective. To succeed, we focus on the risk,” Orner added. “We see great opportunity for investors at the short end of the yield curve, especially since the current flat yield curve fails to offer incentive to increase durations.”
Aware Asset Management has experience overseeing investments for Blue Cross & Blue Shield of Minnesota and rolled out the ultra-short duration bond ETF for insurers and other treasurers whom are seeking to streamline cash management, Bloomberg reports.
“We focus on preserving investment capital and maintaining that appropriate liquidity,” John Kaprich, one of the new fund’s managers, told Bloomberg. “Our job is to ensure that claims are met.”
The new active ETF could also help bond investors navigate a changing interest rate environment as the ultra-short duration diminishes the fund strategy’s rate risk exposure – duration is a measure of a bond fund’s sensitivity to changes in interest rates and a lower duration corresponds with lower rate risk.
“AWTM offers the opportunity for attractive yields in a diversified basket and has less exposure to interest rates due to its ultra-short duration, which we define as less than 1 year. Moreover, the active management provides fixed income investors with the opportunity to outperform and enables portfolio managers to quickly respond to changing market conditions. We also see AWTM as a potential alternative to commercial paper for treasury managers with greater liquidity due to its exchange-traded structure,” Kaprich said.
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