Federated Hermes has debuted its first ETFs with the launch of two actively managed short-duration fixed income funds.
The ETFs may appeal to investors seeking high current income while managing interest rate risk.
Listed on NYSE Arca, the funds are the Federated Hermes Short Duration Corporate ETF (FCSH US) and Federated Hermes Short Duration High Yield ETF (FHYS US).
According to the $634 billion AUM Pittsburgh-headquartered asset manager, the funds are designed for investors seeking high current income with reduced inflation and interest rate risk compared to products that invest in longer-duration securities.
The funds also integrate Federated Hermes’ proprietary ESG assessment while also providing the traditional advantages of the ETF structure including tax efficiency, lower costs, and intraday trading.
John B. Fisher, President and CEO of Federated Advisory Companies, said: “With growing US client appetite for fixed-income, our first two ETF strategies build upon Federated Hermes’ heritage of responsible investing, diligent credit analysis, and experience in providing compelling options at every step of the yield curve. Additionally, we believe that investors in high-yield and short-duration ETFs can benefit from the capabilities of an experienced active manager.”
The Federated Hermes Short Duration Corporate ETF is run by Senior Portfolio Manager John Gentry, Head of Federated Hermes’ corporate fixed income group which consists of 11 members averaging 17 years of industry experience and 13 years at Federated Hermes.
The fund invests in USD-denominated investment-grade securities consisting primarily of corporate debt with remaining maturities between one and five years. It will maintain a dollar-weighted effective duration between 1.5 and 3.5 years, while up to 10% of assets may be allocated to non-investment grade securities.
Portfolio construction is driven by various economic and market indicators in order to identify securities with favourable yield spreads relative to their credit risk.
The ETF comes with an expense ratio of 0.30% due to a fee waiver of ten basis points in place until the end of 2022.
The Federated Hermes Short Duration High Yield ETF, meanwhile, is managed by Senior Portfolio Manager Steven Wagner, Portfolio Manager Tony Venturino, and Senior Portfolio Manager Mark Durbiano, who leads Federated Hermes’ domestic high yield group consisting of 14 members averaging 20 years of industry experience and 16 years at Federated Hermes.
The fund invests in a diversified portfolio of USD-denominated high yield corporate bonds, bank loans, leveraged loans, and floating-rate loans while maintaining an effective duration of three years or less.
Federated Hermes seeks securities offering high potential returns for the assumed default risks. Its selection process consists of a credit-intensive, fundamental analysis of issuing firms including financial strength, product strength, competitive position, management expertise, as well as economic and industry factors.
The ETF comes with an expense ratio of 0.51% due to a similar ten basis point fee waiver.