MINT PIMCO Enhanced Short Maturity Active ExchangeTraded Fund

With the Fiscal Cliff fast approaching and some shakiness appearing on the horizon for the markets, many have been taking a more low risk technique to investing. Short-term securities and precious metals have been very popular in this environment, and they could continue to remain in focus if uncertainty continues to take hold of the markets.

In this climate of increased demand for low risk products, AdvisorShares, a leader in active ETFs, has thrown its hat into the ring offering up a low risk choice of its own. This proposed fund, which was revealed in a recent SEC filing, looks to trade under the ticker of HOLD and offer up low risk exposure for those looking to preserve capital while maximizing income (see Looking for Safety? Try These Money Market ETFs).

This could make the product an excellent choice for those looking for a new active management take on the lower risk slice of the market while still having a watchful eye of a manager in order to keep risks at their minimum. However, without tracking an index, fees are likely to be much higher (although these were not released in the initial filing), a situation that could greatly eat into overall returns in today’s low rate environment.

HOLD’s Methodology

The proposed fund looks to one day follow fixed income securities from a variety of issuers, so long as they are investment grade and U.S. dollar-denominated. While the average duration will change, it is expected that it will not exceed one year, helping to keep sensitivity to an absolute minimum (read the Comprehensive Guide to Money Market ETFs).

This approach looks to zero in on the safest possibly fixed income securities out there, giving investors peace of mind over their bond investment. However, the low duration and low risk will likely result in depressed income levels, suggesting that it may not be much of a yield destination for income-starved investors.

ETF Competition

Investors should also note that there are already a few ETFs that will be targeting this short-duration space. Arguably the biggest competitor is the PIMCO Enhanced Short Maturity Strategy ETF (MINT), a product that charges investors 35 basis points a year.

This product has over two billion in AUM, and is easily one of the most popular products in the space. However, investors should note that the yield is below 0.7% in SEC 30-Day terms while the maturity is about one year, suggesting that while it will be nearly risk free, it doesn’t offer up much in terms of current income (also read FlexShares Debuts Active Money Market ETF).

Given how successful MINT has been, and the similar focus of the product when compared to HOLD, AdvisorShares’ fund could have an uphill battle in terms of accumulating a decent asset base if it is ever approved. This is of course unless HOLD can find a way to be competitive in terms of after fee yield, or if the proposed fund can offer up a solid level of price appreciation beyond its entrenched PIMCO counterpart.

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