The ETF Built For Active Managers Is Getting Some Love
(Bloomberg) -- Sometimes all it takes is a little understanding.
State Street Corp. is overcoming active loan managers’ suspicion of exchange-traded funds with a product that shuns the indexes most ETFs track. Eaton Vance Corp. and Wellington Management Group have bought shares in the SPDR Blackstone/GSO Senior Loan ETF, known as SRLN, regulatory filings show. The fund -- like these Boston-based investors -- seeks to beat the market by buying leveraged debt chosen by its managers.
While actively managed products make up less than 2 percent of the $3.6 trillion U.S. ETF market, issuers are increasingly choosing individuals over indexes to manage their credit strategies. Some 35 percent of debt ETFs started this year are actively managed and fixed-income ETFs using these strategies control $44 billion. That’s because passive benchmarks tend to skew toward more indebted companies, adding potentially unwanted risk to a portfolio.
“Spiritually it makes more sense, we reject passive,” said Christopher Remington, an institutional portfolio manager at Eaton Vance. “In some ways it might seem like a bit of a mind-bender -- if you’re an active manager why are you investing in some other active product? -- but it’s another part of the investment universe now, the fact that these structures exist, and we can take advantage of that in a way that helps limit our cash drag.”
A spokeswoman for Wellington declined to comment on why the fund is buying SRLN.
Active money managers have ramped up their use of ETFs in recent years, with many seeing the funds as cash-like instruments that deliver extra performance. The products can either be used as a short-term allocation while a manager looks for attractive securities, or as a buffer that can be sold quickly if a fund has outflows.
Their interest in SRLN has helped the fund absorb $976 million this year, more than any other U.S. loan ETF, Bloomberg-compiled data show. By contrast, Invesco Ltd.’s Senior Loan ETF -- a passive fund with $7.4 billion that goes by the symbol BKLN -- has seen almost $500 million of outflows. SRLN is outperforming its rival by about 16 basis points this year, but charges an extra 50 cents for every $1,000 invested.
Eaton Vance owned 2.3 million shares in SRLN, 3.3 percent of the fund, as of June 30, according to data compiled by Bloomberg and reports on the company’s website. The shares, spread across five mutual funds that manage billions of dollars, would be worth about $110 million today.
Wellington also owned more than 2.3 million shares of the fund as of June 30, filings with the U.S. Securities and Exchange Commission showed this week. It began building a position late last year and has since reduced its holdings in Invesco’s BKLN by more than 1 million shares.
“The fund resonates well with active managers who are starting to have a bit of an ‘aha moment,’” said Bill Ahmuty, head of State Street’s ETF fixed-income group. “Their philosophy on this is similar to ours.”
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