The ETF Show - Actively Managed Fixed Income Opportunities
- 04 mins 56 secs
Tim Coyne, Global Head of Exchange Traded Funds at T. Rowe Price, and Bill Sokol, VP, Director of Product Management at VanEck, take a closer look at the use case for CLOs and high-yield bonds.Channel: ETF
Jenna Dagenhart: Hello and welcome to the ETF Show. Joining us now to talk about opportunities in high-yield bonds and the growth of active ETFs is Tim Coyne, global head of Exchange Traded Funds at T. Rowe Price.
Tim, active ETFs continue to gain additional focus. How is the T. Rowe Price ETF business evolving, and what are you focused on?
Tim Coyne: We continue to see broader adoption of active ETFs. While active ETFs are currently about 5% of the overall ETF assets under management, year-to-date, active ETFs have captured about 13% of overall flows. At T. Rowe Price, we continue to expand our ETF product suite to provide clients additional choice when it comes to investment products available in the ETF format.
Jenna Dagenhart: And it looks like you recently launched an actively managed high-yield bond ETF. Can you tell us about the rationale behind the launch and the opportunity that you see?
Tim Coyne: High-yield is a well established and heavily used category in ETFs. Overall, there's currently about 300 billion in high-yield funds. 80% of those assets are invested in actively managed funds. So in general, high-yield is one of the asset classes that advisors have preferred using an active manager versus a passive index fund. And today, from an ETF perspective, the vast number of existing high-yield ETFs are passive and follow an index. So there are just not as many options for advisors to access time tested, active high-yield strategies in the ETF structure, and we think that's a real opportunity.
THYF highlights the key benefits of active management and there are benefits to active in any asset class, but certainly in high-yield as it allows access to a broader investible universe and provides the ability to construct and position the portfolio to better align with market views and to take advantage of compelling entry points.
Jenna Dagenhart: Also joining us to discuss another actively managed area within fixed income is Bill Sokol Vice President and Director of Product Management at VanEck. He takes a closer look at CLOs and how investors are using collateralized loan obligations within their portfolios.
Bill Sokol: So CLO is a diversified portfolio of leverage loans and it's actively managed and securitized. Like other securitizations, the CLO issues multiple trenches of debt with varying levels of seniority. And what that means is that investors can get investment grade quality exposure to non-investment grade leverage loans.
Jenna Dagenhart: So Bill, how can investors use CLOs within a portfolio?
Bill Sokol: Well, CLOs have many benefits versus the risk protections including the subordination you can get. That does result in very high quality exposure. Second, CLOs have historically provided very significant and consistent spread pickup versus bonds and loans with the same rating, and yields right now are just very attractive on a historical basis. So you do have that combination of high-quality anti yield which investors find very appealing, as well as floating rate exposure because the coupons are based on short-term prevailing interest rates. So what we find is that investors use them typically in one or two ways. First, as a safer way to access leverage loans because you do get added protection against defaults. Second, we find many investors using CLOs in their core investment grade bond portfolios because you get enhanced yield without sacrificing quality.
Jenna Dagenhart: Finally, Bill, you've partnered with PineBridge Investments in your ETF CLOI, which is actively managed. Why go active?
Bill Sokol: Every CLO is different. You know, need to look at every deal on an individual basis and analyze the portfolio, the manager, and the deal documentation. It really does require a deal-by-deal due diligence. From a top-down perspective, we think there's a lot of value in being able to utilize the entire rating spectrum rather than focusing on a single rating category. But to do that you really do need to be able to construct a portfolio that can take advantage of opportunities when they arise.
Jenna Dagenhart: And that wraps it up for the ETF show. Thanks for watching and we'll see you next time. I'm Jenna Dagenhart with Asset TV.