Guggenheim Investments debuted a new actively managed fixed income exchange traded fund Wednesday, the Guggenheim Total Return Bond ETF (GTO), based on its top-rated mutual fund, the Guggenheim Total Return Bond Fund (GIBIX).
Led by the same team managing GIBIX, the fund primarily invests in investment grade bonds across multiple sectors. The new ETF has an expense ratio of 50 basis points, cheaper than its competitors in the space, SPDR DoubleLine Total Return Tactical ETF (55 basis points) and PIMCO Total Return ETF (57 basis points).
Overall, Guggenheim has had positive net flows into its fixed income mutual funds in 45 of the last 47 months. Additionally, its fixed income mutual fund assets have increased 78.5 percent in 2015.
WealthManagement.com sat down with GTO fund manager Anne Walsh to talk about the fixed income market and Guggenheim’s management process.
WealthManagement.com: Guggenheim is known for its team structure. What does that look like when it comes to developing these core strategies?
Anne Walsh: Other asset management firms have portfolio managers, deciding what bond goes into the portfolio, picking between two issuers, doing all the credit work, trading with the Street, and managing clients. Whereas we adhere to a behavioral finance thought process based on the work by Dr. Danny Kahneman, author of Thinking Fast and Slow.
We have the macroeconomic team, making economic calls, creating the house view, and telling us about outlooks on GDP, actions by the Fed, yield curve shape and shift, and areas that are a problem potentially. Then we also have individual sector teams for corporate credit, asset-backed securities, municipals, rates, etc., working to find the best individual securities. And then the portfolio construction and portfolio management teams step in. So we’re not having portfolio managers making decisions in regards to rates or individual securities selections. When the sector teams decide what they’re going to recommend for purchase, the managers determine where it fits.
WM.com: Some have said Guggenheim’s success in fixed income hinges on asset-backed securities. Is that true?
AW: We do our best work in the non-indexed space. The U.S. fixed income market is about $38 trillion, and of that, $17 trillion appear in an index. That leaves a whole lot of space for assets that aren’t in the Barclays’ aggregate bond index.
WM.com: How do you mitigate the risk?
AW: Investors tend to value avoidance of loss more than they tend to value what we refer to as alpha today, says Kahneman. In the land of fixed income, that really sings. You don’t default the bond; you get paid the coupon. If you stick to those rule sets, you collect more income. We go to the areas of the marketplace where you collect more income, that non-indexed portion. Now some people call that the illiquid portion of the market, and relatively speaking, I suppose it is. But I like to think of it more as us earning an information premium for doing our homework. And that homework is upfront; it involves rolling up your shirtsleeves to understand that transaction. Structured securities, or structured credit, is an area where you’ve got to roll up your shirtsleeves, and we have a high level of expertise that goes all the way back to the roots of the firm.
WM.com: Any particular asset class you like working with?
AW: I do have a special love for structured credit, only because I’ve done it for years myself and it’s intricate. It’s a great asset class, and it’s not well understood by most investors. It’s purely an institutional asset class, and even within institutions, it’s not as well followed as it could be, simply because it takes a lot of resources to do it right.
WM.com: What’s your outlook for the fixed income market?
AW: This is probably one of the most challenging market environments to be a fixed income manager. We’re in a world where you have central banks around the globe easing constantly; you have heightened levels of debt issuance, and it’s terribly affordable for the issuers, whether they’re governments or corporations or what have you. And so it’s challenging because, as an investor, you’re concerned about what happens. You never want your fixed income manager to be an optimist.