Displaying items by tag: mutual funds

Several fund firms are looking to expand their fixed-income product lines to take advantage of the growing interest in the asset class. Fixed income had experienced a couple of turbulent years as the Federal Reserve's rate increases impacted yields and made equities more volatile. Plus, actively managed fixed-income mutual funds experienced one of their worst years on record in terms of outflows. However, the demand for fixed income this year appears to be gaining steam with several firms positioning themselves to take advantage of this trend. For instance, BlackRock has been rolling out new products to meet fixed-income demand. In January, the firm launched the BlackRock AAA CLO ETF, which has already taken in more than $30 million in assets as of Feb. 21st. Plus, last year, BlackRock launched a first-of-its-kind series of fixed-income ETFs that are designed to provide access to buy-write investment strategies on baskets of fixed-income securities. According to Steve Laipply, U.S. head of iShares Fixed Income at BlackRock, “The theme here is building out different tools for investors to navigate the environment so you continue to see this floating rate theme across the credit spectrum.” The firm is eyeing additional products in the future. Laipply also added that the industry will begin to get more creative when it comes to rolling out new products in the fixed-income space.

Finsum:After a couple of turbulent years, fixed-income funds are seeing increased demand, leading fund firms to take advantage of the trend by launching new products.

Fidelity Investments recently announced it was adding to its active fixed-income strategies lineup with the launch of the Fidelity Municipal Core Plus Bond Fund (FMBAX). According to Fidelity, FMBAX is available commission-free and with no investment minimum to individual investors and financial advisors through Fidelity’s online brokerage platforms. The fund has a 0.37% net expense ratio and a 1.28% gross expense ratio. FMBAX is measured against the Bloomberg Municipal Bond Index and the Fidelity Municipal Core Plus Bond Composite Index, and aims to provide a high current yield exempt from federal income taxes, and may also consider capital growth. Co-managers Cormac Cullen, Michael Maka, and Elizah McLaughlin will analyze the credit quality of the issuer, security-specific features, current and potential future valuation, and trading opportunities to select investments. The fund launch comes at a time when the retail and institutional demand for higher-yielding municipal bond funds is growing. According to the fund giant, this new product seeks to offer a strong yield and total return profile, with potentially lower volatility than pure high-yield funds. Jamie Pagliocco, Fidelity’s fixed income head has this to say about the fund launch, “Fidelity’s growing suite of active fixed income investment products leverage Fidelity’s breadth and depth of resources and expertise as an active manager to identify investment opportunities across the credit spectrum.”

Finsum:Fidelity Investments launched an active municipal bond mutual fund amid increased retail and institutional demand for higher-yielding municipal bond funds.

As investors increasingly buy ESG funds, there has also been an increase in academic research on the impact of implementing ESG constraints on equity portfolios. However, there hasn't been as much attention paid to research on ESG fixed-income investing. Inna Zorina and Lux Corlett-Roy published their study “The Hunt for Alpha in ESG Fixed Income: Fund Evidence from Around the World,” in the Fall 2022 issue of The Journal of Impact and ESG Investing. In the study, they examined whether ESG fixed-income funds generate out- or under-performance after controlling for systematic fixed-income factors. They found that while ESG fixed-income funds with a higher level of risk generally produced higher returns, most ESG fixed-income funds did not produce statistically significant positive or negative gross alphas. In fact, only 7% of funds managed to deliver greater returns at a lower level of risk relative to the respective benchmark. The study revealed that across ESG fixed-income funds with a European, U.S., and global focus, performance was mainly driven by systematic fixed-income factor exposures such as term and default risk. The results led Zorina and Corlett-Roy to conclude: “ESG fixed-income mutual funds and ETFs have not consistently delivered statistically significant gross alpha controlling for key fixed-income factors. The majority of alphas are statistically insignificant and therefore indistinguishable from zero. This conclusion is similar across fixed-income funds with a European, US, and Global ESG investment focus.”

Finsum:A recent study that looked into whether fixed-income ESG funds provided outperformance revealed that ESG fixed-income mutual funds and ETFs have not consistently delivered statistically significant gross alpha.

While many investors who care about the environment have piled money into funds that focus on ESG strategies, they probably don’t know how much they are paying. That is according to a new study, which found that “at the average ESG fund, the effective fees can be three times what’s reported.” The reason for this is that ESG funds are nowhere near as pure as they look to be. According to a new Harvard study, on average, ESG funds have 68% of their assets invested in “the exact same” holdings as non-ESG funds. So, for every dollar you invest in an ESG fund, a little less than a third goes into stocks you could have gotten in a fund that isn’t ESG. The average ESG U.S. stock ETF charges 0.17% in annual fees, according to Morningstar, 0.05 percentage points more than non-ESG funds. Finance professor Malcolm Baker of Harvard Business School, one of the study’s authors, said, “Although only about a third of your money in the average ESG fund is distinctly green, you incur the fees on the entire portfolio. Therefore, you’re really paying three times as much for the thing you care about, the differentiated piece of the portfolio.”

Finsum:A recent study found that on average, 68% of holdings in ESG funds are the exact same as holdings in non-ESG funds, which makes these funds three times more expensive than you think.

Putnam Investments recently announced the availability of Putnam Sustainable Retirement Funds, a target-date series for the retirement savings marketplace. The suite invests in actively managed ESG-focused ETFs managed by Putnam. The funds implement a similar retirement glidepath philosophy as the firm’s other target-date offering, Putnam Retirement Advantage. The series offers vintages for every five years from 2025 through 2065, along with a maturity fund. The Putnam Global Asset Allocation team, which also manages Putnam Retirement Advantage, is responsible for the glidepath and both the tactical and ETF allocations of the Putnam Sustainable Retirement target-date suite. The series was developed in part to respond to the growing interest in sustainable investing within the defined contribution retirement market according to Steven P. McKay, Putnam’s Head of Global Defined Contribution Investment Only. Robert L. Reynolds, President, and Chief Executive Officer, of Putnam Investments, said the following as part of the announcement, “As the retirement marketplace continues to evolve and grow, there is tremendous appetite for meaningful product innovation that creates greater choice of offerings to help working Americans achieve their financial goals.” The funds will invest in ETFs across asset classes managed by the firm, including:

• Putnam Sustainable Future ETF (NYSE Arca: PFUT)
• Putnam Sustainable Leaders ETF (NYSE Arca: PLDR)
• Putnam ESG Core Bond ETF (NYSE Arca: PCRB)
• Putnam ESG High Yield ETF (NYSE Arca: PHYD)
• Putnam ESG Ultra Short ETF (NYSE Arca: PULT)
• Putnam PanAgora ESG Emerging Markets Equity ETF (NYSE Arca: PPEM)
• Putnam PanAgora ESG International Equity ETF (NYSE Arca: PPIE)

Finsum:Putnam recently announced the availability of Putnam Sustainable Retirement Funds, a target-date series that invests in actively managed ESG-focused ETFs managed by Putnam.