Market for Ultra-Short Active Bond ETFs Grows

What You Need to Know

  • BNY Mellon has filed an application with the SEC for an ultra-short actively managed bond ETF.
  • Vanguard launched an ultra short actively managed bond ETF in early April.
  • These ETFs act as a bridge between money market funds and short-term bond funds.

Competition is heating up in the ultra-short bond ETF space. Less than four weeks after  Vanguard launched an ultra-short bond ETF — its first active bond ETF — BNY Mellon announced it has filed an application with the Securities and Exchange Commission to introduce its own ultra-short bond ETF.

The BNY Mellon Ultra Short Income ETF Bond ETF, like the recent Vanguard entry and many  other ETFs in this space, will be actively managed. It will invest in a variety of ultra-short-term fixed income securities, but investments will be concentrated in the banking industry, with at least 25% of net assets invested in domestic or dollar-denominated foreign bank obligations. Assets will have an average A credit rating.

Fees were not disclosed in the SEC filing, but they will be competitive, said Stephanie Pierce, CEO of ETF, Index, and Cash Investment Strategies at BNY Mellon Investment Management.

The pending BNY Mellon Ultra Short Income ETF is one of four actively managed ETFs that BNY expects to introduce. It has filed with the SEC to offer a suite of three actively managed sustainable equity ETFs — for U.S., international and emerging markets — which are pending.

Ultra-short-term bond ETFs have been “extremely popular” and examples of where “active management has worked,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. “They are a good alternative to money market funds if you’re willing to take on a slight bit of risk.”

Actively managed ultra-short-term bond ETFs are also a way for fund companies to use their in-house expertise to adjust bond allocations as market conditions change, including interest rates, Rosenbluth said.

He expects to see more ultra-short bond ETFs come to market due to growing demand as investors get more comfortable with these ETF products.

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