ActiveETFs | InFocus

Date Launched: January 29, 2010

Links: Website, Prospectus

Investment Strategy:

(GMTB: 52.1176 0.00%) is an actively-managed bond ETF that invests at least 80% of its assets in investment grade debt securities issued by the US government, its agencies, municipalities, other mortgage and asset-backed securities as well as corporate and bank obligations. The fund tries to achieve a high level of current income and risk-adjusted returns above its benchmark – the Barclays Aggregate Bond Index. The GMTB portfolio is expected to have an average duration of 3-6 years. The portfolio is sub-advised by McDonnell Investment Management, which uses a total return strategy involving sector and security selection as well as yield curve positioning. The investment decisions are based on fundamental credit analysis and analysis of momentum factors as well. In times of market stress, the fund may be 100% cash. GMTB is also allowed the use of derivatives like futures and swaps but only for risk management purposes.

Portfolio Managers:

GMTB is sub-advised by McDonnell Investment Management which manages more than $13 billion in assets and they provide day-to-day portfolio management services for the fund. Overall responsibility for managing the fund lies with Michael Kamradt, the Chief Investment Officer at McDonnell, who coordinates the portfolio management and trading operations. He has more than 30 years in industry experience, having worked previously at Van Kampen Management and JP Morgan.

The fund is managed not by just one portfolio manager but by teams, as individuals focus on a particular sector or maturity range.  The team for taxable bonds consists of:

Mark J. Giura – Managing Director, Taxable Portfolio Management

Dirk D. Davis – Vice President, Senior Portfolio Manager

Thomas W. O’Connell – Vice President, Portfolio Manager

Past Performance –

1. The prospectus highlights the performance of a “Taxable Composite” which represents 8 accounts managed by McDonnell with objectives, policies, strategies and risks similar to GMTB. The composite outperformed the Barclays Capital Aggregate Index in the 1-yr and 3-yr period, but has underperformed in the 5-yr, 10-yr periods as well as since inception (14 basis points underperformance).

The Numbers:

Expense Ratio – Capped at 0.35% until at least January 31, 2011 (by contractual agreements with the manager), and 0.58% after that.

Average Bid-Ask Ratio – n/a

Average Volume – n/a

What’s special about it?

1. GMTB may invest up to 90% of its assets in mortgage and asset-backed securities, up to 80% in corporate debt, up to 30% in municipal debt and it can also invest in other ETFs and money market funds, though all of them have to US$ securities.

2. It may also invest up to 20% of its assets in high-yield securities or those rated below BB+.

Analysis:

Positives –

- GMTB does outline a comprehensive management strategy involving yield curve positioning and momentum analysis aside for just pure fundamental analysis. These strategies could work particularly well in a market where the currently steep yield curve will undergo a definite flattening in the future and where markets are still quite momentum driven.

Negatives –

- While the benchmark, Barclays Aggregate Index, only admits investment grade securities into the index, GMTB is allowed a lot more flexibility in what it can invest in. Being allowed to invest in high yield securities and ETFs as well may allow it to beat the benchmark, but it may come at the cost making the portfolio riskier and more volatile.

Disclosure: No position in GMTB.
 
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