Tidal Financial Group recently announced the launch of the Senior Secured Credit Opportunities ETF (SECD), its first actively managed credit ETF. The fund, which is managed by Gateway Credit Partners seeks to generate consistent income and preserve capital by investing in a combination of first-lien senior secured loans and secured bonds to businesses operating in North America. Gateway is a value-based credit manager that focuses on capturing fundamental and technical inefficiencies in the leveraged loan and high-yield bond market. The firm focuses on generating true alpha which they define as yield per turn of leverage significantly greater than their representative indices. It believes a “size arbitrage” exists in credit markets as rating agency models can over-emphasize size vs credit fundamentals. Tim Gramatovich founder of Gateway had this to say about the ETF launch, “At over $3 trillion, the US loan and high-yield bond markets offer investors a tremendous opportunity to generate yield. We believe SECD fills a much-needed gap in the actively managed corporate credit space particularly as it relates to the loan market.”

Finsum:Tidal Financial Group recently launched an actively managed credit ETF that aims to take advantage of higher yields in the loan market.

With bond mutual funds experiencing record losses this year, many investors are headed for the exit. But most are not leaving fixed income altogether, they’re just swapping mutual funds for ETFs. The main reason is taxes. Many investors are selling positions in bond funds and putting the cash into similar ETFs to harvest tax losses. According to The Wall Street Journal, “This year is shaping up to be the biggest 'wrapper swap' on record.” About $454 billion has been pulled from bond mutual funds, while $157 billion has flowed into bond ETFs through the end of October. According to macro research firm Strategas, it would be the largest net annual swap to ETFs by a wide margin.” Todd Sohn, ETF strategist at Strategas stated, “The Fed is at its most aggressive in 40 years. Along with inflation, that has absolutely crushed bonds. It’s set off the acceleration of wrapper swapping that we have seen in equities for a while. Now we’re finally getting it in bonds.” Many of these swappers are also taking their money out of mutual funds that hold riskier bonds and putting them into safer Treasury ETFs.

Finsum:With the bond market experiencing its worst year since 1975, bond investors are trading mutual funds for ETFs at a record pace.

The private REIT market was recently rocked by the decision of Blackstone and Starwood, which manage two of the nation's largest private REITs, to limit and prorate investors' repurchase requests because they exceeded redemption restrictions. Private REITs are real estate investment trusts that are exempt from SEC registration and whose shares do not trade on national stock exchanges. While the private REIT market flourished during the low interest-rate era between 2017 and 2021, the expectation that interest rates will continue to rise could make it difficult for these private funds to perform well in the future. That and a perceived gap between the performance of nontraded private REITs and public REITs led to a surge in investor redemptions for Blackstone and Starwood. Both firms are trying to shore up their funds’ liquidity through redemption restrictions. The Blackstone Real Estate Income Trust (BREIT), which has $125 billion in assets under management, announced the closing of redemptions for this quarter in a letter to shareholders last week. The announcement from the Starwood Real Estate Income Trust (SREIT), which is valued at about $14.6 billion, came more recently over the weekend. 

Finsum:Rising interest rates led to a surge in investor redemptions for private REITs, resulting in Blackstone and Starwood restricting redemptions this quarter.

LPL Financial recently announced that Financial House has joined its broker-dealer, RIA, and custodial platforms. LPL was able to lure Financial House from Lincoln Financial, where the team managed around $650 million in advisory, brokerage, and retirement assets. The Financial House team, which was based in Centreville, Delaware, includes partner advisors Joseph Biloon, Robert Griesemer, and Emily Woodson as well as advisors Joseph Blair, Leo Strine, and Gary Ulrich. According to Griesemer, the team left Lincoln because its business had model changed. He said the following in a statement, “Financial House was founded primarily as an insurance and planning firm, but that’s changed over the years. We now offer more comprehensive, complex investment strategies and planning, so working with an insurance-based partner no longer suited our business model.” He added, “At the end of the day, we recognized LPL would provide us with more independence and flexibility to grow our practice as we see fit.” According to Biloon, “Financial House expects LPL to provide it with opportunities to add advisors and potentially acquire other practices because of LPL’s access to retiring advisors who want to sell part or all of their business.”

Finsum:A $650 million team left Lincoln Financial for LPL due to its changing business model that no longer fit with Lincoln’s insurance-based model.

According to the results of a recent survey, fixed-income investors want more ESG data than what is currently available. A survey of 111 senior buy-side fixed-income investors, which was conducted by analytics firm Coalition Greenwich, found that 90% believe ESG is important to decision-making, but only a third have fully integrated ESG into their risk analysis. The reason for the large difference is a lack of ESG data. Coalition Greenwich’s senior analyst Stephen Bruel stated “It boils down to risk management. If you don’t have reliable ESG data about an issuer or issuance, then it’s harder to calculate what the negative consequences might be.” More than half of the respondents said it was “important to incorporate ESG in fixed-income portfolios to perpetuate corporate values,” but there’s a “gap between where the survey participants want the industry to be and where it actually is.” Data was listed as the largest obstacle to achieving these ESG goals. The concerns about ESG data quality included greenwashing and inconsistent ratings. Essentially, if the data isn’t reliable, then quantifying risk becomes harder, which could open up investors to sizeable losses. This is especially true with the calculation of climate risk, which would certainly benefit from more data.

Finsum: Based on the results of a recent survey, fixed-income professionals believe ESG is important, but a lack of data is preventing more of them from implementing an ESG strategy.