Aware debuts with short-duration bond ETF

Jan 30th, 2019 | By | Category: Fixed Income

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Newcomer Aware Asset Management, in partnership with white-label platform Tidal ETF Services, has launched its first ETF by listing the Aware Ultra-Short Duration Enhanced Income ETF (AWTM US) on NYSE Arca.

John Orner, President and CIO of Aware Asset Management.

John Orner, President and CIO of Aware Asset Management.

The fund leverages Aware’s experience in managing insurance company assets to provide an actively managed portfolio of short-duration bonds. The Minnesota-based asset manager currently oversees approximately $1.6 billion in assets under management.

According to the fund’s prospectus, the ETF may invest in both fixed and floating-rate debt from issuers globally as long as the debt is investment grade and denominated in US dollars.

AWTM targets a gross yield of 0.75% to 1.00% over the yields on the most recently issued 3-month US Treasury Bills. Investors in the fund will receive monthly interest distributions.

In maintaining a short-duration profile, the fund will target an average duration of less than one year.

“We developed this ETF as an alternative to earnings credits, commercial paper, and money market funds,” said John Orner, President and CIO of Aware Asset Management. “We believe we have built a liquid, diversified, cost-effective solution that seeks to preserve capital while maximizing current income.”

“Generating high returns with low risk is our objective,” added Orner. “To succeed, we focus on the risk. We see great opportunity for investors at the short end of the yield curve, especially since the current flat yield curve fails to offer an incentive to increase durations.”

“AWTM offers the opportunity for attractive yields in a diversified basket and has less exposure to interest rates due to its ultra-short duration,” said John Kaprich, Investment Director at Aware Asset Management. “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.”

The fund comes with an expense ratio of 0.23%, slightly higher than the 0.15% charged by the largest passive ETF operating in this space – the $21 billion iShares Short Treasury Bond ETF (SHV US). SHV tracks the ICE US Treasury Short Bond Index, providing exposure to US Treasury Bonds with remaining maturities between one month and one year.

However, AWTM’s price tag is cheaper than the $12 billion PIMCO Enhanced Short Maturity Active ETF (MINT US) – a similar active fund investing in short-duration, investment grade, US dollar-denominated bonds – which costs 0.42%. MINT is the largest actively managed short duration bond ETF; the fund benefits from PIMCO’s pedigree as a fixed income asset manager and the fact that it was one of the first ETFs to offer exposure to the ultra-short duration market.

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