ClearShares launches actively managed repo ETF

Jul 16th, 2018 | By | Category: Fixed Income

US-based ClearShares has launched its second ETF – the ClearShares Ultra-Short Maturity ETF (OPER US) – an actively managed fund investing in repurchase agreements (repos) backed by high quality fixed income collateral.

Dollar Short-term Repo Bond ETFs

A repo is a form of short-term borrowing backed by collateral.

A repo is the sale of a security with a simultaneous commitment by the seller to repurchase the security, usually the following business day, from the buyer at a predetermined price.

As repos are backed by collateral, they protect the buyer against the possible risk that the seller is unable to repurchase the security as promised.

Such agreements are widely used by the likes of banks, securities firms, insurance companies and hedge funds as vehicles to raise short-term liquidity.

OPER’s strategy is to purchase high quality collateral (US Treasuries, US agency-backed securities, and mortgage-backed securities) from sellers who agree to repurchase it, most often on the following business day. The fund may also invest directly in US Treasuries and agency securities such as mortgage-backed securities.

According to ClearShares, the ETF may “provide an alternative to low yielding money market and non-yielding cash positions through short-term fixed income securities.”

While there are several factors that affect the repo rate charged to the institution lending out securities, such as quality of collateral and creditworthiness of the lender, the rate will be closely tied to the official repo rate or the rate at which the Federal Reserve extends overnight loans to commercial banks in the event of shortfall of funds.

ClearShares will target an effective duration and dollar-weighted average maturity for OPER of one year or less.

“Clearbrook has been on the forefront of introducing innovative solutions to the marketplace that helps investors of all sizes to participate in order to help meet their investment goals,” said Elliott Wislar, CEO of Clearbrook. “The OPER ETF is suitable for all investors, particularly high-net-worth, small to mid-sized corporations and institutions seeking higher returns on their cash assets.”

“Since the ‘Great Recession’ of 2008, short-term fixed income and cash like funds have provided a nominal return – close to zero percent. The ClearShares Ultra-Short Maturity ETF seeks to fill the return void and provide an alternative to low-yielding money market and cash positions,” said Tom Deegan, Chief Operating Officer of Clearbrook. “Investors can purchase shares in the Fund with a minimum $100 investment.”

The ETF charges an expense ratio of 0.30% and has been listed on NYSE Arca.

While not specifically targeting repos in their investment strategies, there are several actively managed short-term fixed income ETFs that also seek to provide an enhanced level of income.

The largest of these is the PIMCO Enhanced Short Maturity Active ETF (MINT US) which launched in November 2009 and has grown its assets under management to over $9.4 billion. MINT invests in ultra-short, investment grade fixed income securities but selects bonds from any issuer globally. It has an expense ratio of 0.36%.

This fund has a European-domiciled equivalent, namely the PIMCO US Dollar Short Maturity Source UCITS ETF (MINT) from Invesco, listed on the London Stock Exchange, SIX Swiss Exchange and Borsa Italiana.

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