Products May 12, 2022

Investment Product and Service Launches

Dimensional lists new ETF and completes mutual-fund-to-ETF conversion; Northern Trust partners with Enfusion as part of whole office strategy; Nuveen introduces retirement investing group; and more.

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Art by Jackson Epstein

Dimensional Lists New ETF and Completes Mutual-Fund-to-ETF Conversion

Dimensional Fund Advisors, a global specialist in systematic investing, has expanded its exchange-traded funds offerings with the listing of the firm’s U.S. Marketwide Value ETF.

The new fund is the result of Dimensional’s conversion of its tax-managed U.S. Marketwide Value Portfolio II mutual fund into an active transparent ETF. The firm says this is the seventh and final planned conversion of tax-managed mutual funds into ETFs completed since June 2021.

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The new fund, which is listed on the New York Stock Exchange, features a net expense ratio of 0.23%. It is described as a U.S. market solution that emphasizes companies with low prices in relation to their book values and targets higher expected returns and consistent exposure through a daily flexible process.

Dimensional says its ETF suite complements the firm’s existing mutual funds and expanded separately managed accounts offerings, providing further choice in how clients access Dimensional’s research-driven investment process.

Northern Trust Partners with Enfusion as Part of Whole Office Strategy 

Northern Trust has established a relationship with Enfusion Inc., a provider of cloud-native investment management software and services, to provide portfolio support and new order/execution management and analytics capabilities to mutual clients. 

Through this collaboration, Enfusion and Northern Trust say they can offer asset managers, hedge funds and internally managed asset owner clients with a fully integrated, end-to-end solution that streamlines workflows while leveraging each company’s strengths. 

As a software-as-a-service platform provider, Enfusion has based its operations in the cloud since its inception in 2006. The firm delivers portfolio management, trade execution, order management and risk management functionality from a single platform, with the goal of removing operational and technical barriers that asset managers and hedge funds face. The software components work from a single, unified dataset, keeping investment and accounting books of record in sync throughout the trading day, so the front-, middle- and back-offices all have access to the same information.

According to the firms, the new alliance will enable mutually supported interfaces between the Enfusion platform and Northern Trust’s core asset servicing platforms, thus expediting implementation capabilities, improving data access and increasing operational efficiency. Clients will also have access to dedicated service teams from both companies. 

Building on the alliance, Enfusion has co-developed a certified, mutually supported interface with Northern Trust partner Equity Data Science Inc., which is in use by several joint clients. EDS offers a cloud-based platform that provides applications and decision-support tools to asset managers and hedge funds across the investment lifecycle, including idea generation, research management, portfolio construction, risk management and performance attribution.

Northern Trust Whole Office is an open architecture, multi-asset class strategy serving diverse market participants including asset managers, asset owners, investors and third-party administrators. By integrating proprietary architecture with its partners, Northern Trust Whole Office seeks to facilitate client access to new technologies and capabilities across the spectrum of strategy and trading, operational, data and digital and analytics solutions.

Nuveen Introduces Retirement Investing Group

Nuveen has announced the launch of the Nuveen retirement investing group—a new client-business channel designed to bring Nuveen’s investment offerings to higher-education and not-for-profit plan sponsor and corporate clients while delivering TIAA’s retirement income capabilities to the defined contribution market. This news follows the launch of the TIAA Secure Income Account in January.

The new channel is led by Brendan McCarthy, who now reports to Mike Perry, head of Nuveen’s global client group, as a new member of the global client group leadership team. He will leverage the existing DC-investment-only distribution team and the broader relationships in place with investment consultants.

To deliver guaranteed lifetime income through sales and service of TIAA Traditional and RetirePlus products, McCarthy and his team will focus on providing investment and product expertise to retain and grow the allocation of Nuveen funds on plan menus. They will also coordinate the deployment of Nuveen’s investment, learning and development and marketing capabilities to support all client-facing teams. Additionally, they will continue introducing guaranteed lifetime income solutions to the DC market through positioning of the recently launched secure income account.

The Nuveen Retirement Investing team will partner with TIAA’s client relationship regional general managers, including Ben Lewis, head of TIAA institutional strategic sales, and David Swallow, head of TIAA consultant relations.

State Street Global Advisors Launches New ETF

State Street Global Advisors, the asset management business of State Street Corporation, has announced the launch of the SPDR MarketAxess Investment Grade 400 Corporate Bond ETF. Designed to blend the advantages of an ETF with the tradability benefits of U.S investment-grade corporate bonds that have higher liquidity compared to the broader U.S. corporate bond market, the new ETF strives to offer investors credit exposure with the potential for tighter bid-ask spreads, lower premiums and discounts and more transparency in the underlying holdings’ real-time valuations.

According to the firm, fixed-income markets are evolving with smarter electronic trading protocols, more sophisticated and automated investment strategies and greater availability of useful data. As such, the firm says, MarketAxess U.S. Investment Grade 400 Corporate Bond Index is a more data-driven approach to indexation and aims to pave the way for improved index and portfolio construction.

The SPDR MarketAxess Investment Grade 400 Corporate Bond ETF seeks to track the MarketAxess U.S. Investment Grade 400 Corporate Bond Index. The index measures the performance of 400 U.S. dollar denominated investment-grade corporate bonds with higher-than-average liquidity relative to the broader U.S. corporate bond market. Powered by MarketAxess’ proprietary liquidity and pricing data— Relative Liquidity Score and Composite+ pricing engine—the index combines actionable liquidity with broad market exposure.

Alquity and Spouting Rock to Launch New U.S. ESG Investing Platform

Alquity, a responsible investment manager based in London, and U.S.-based Spouting Rock Asset Management have announced a joint venture and the creation of a new platform to give U.S. investors access to a greater range of ESG and impact-focused funds. 

The partnership will create a distribution platform for Alquity’s funds in the U.S., including its Global Impact Fund and Future World Global Emerging Markets Fund. The partnership also includes Alquity’s Indian Subcontinent Fund.

ESG-focused funds globally saw their combined assets climb to $3.9 trillion in the third quarter of 2021, according to data compiled by Morningstar. While Europe remains the stand-out leader in sustainable funds, both the U.S. and Canada remain early-stage markets. The mission of the new investment and distribution platform is to accelerate the multibillion-dollar ESG and impact investing opportunity in North America.

Spouting Rock, which is also investing in Alquity, provides alternative, traditional and thematic investment solutions that seek to enhance portfolios and protect wealth. This joint venture is the latest addition to the firm’s curated manager platform of well-vetted, active investment solutions.

Data and Research May 11, 2022

ESOP Participants Benefit From Higher Retirement Savings

Employee-owners at S corporations can accrue benefits leading to superior retirement readiness.  

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Employee-owners of S corporations have a retirement readiness advantage over their 401(k) plan counterparts.

Jerry Ripperger, national vice president of stock plan services consulting at Principal, explains that workers’ retirement readiness is greater when they are in S corporation employee stock ownership plans, because participants build equity in the company that they work for. S ESOPs promote broad company ownership, which “is a good public goal” with greater opportunities for employees to fund their retirement, he says.   

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“It’s a way to share wealth across all those that are generating wealth on behalf of the organization,” Ripperger added. “I can’t control how Amazon does, or Google, [but] I can control—to some degree—how [the] company that I work for does. It creates a line of sight and this ability to actually influence those results and reap the benefits.”

ESOPs offered by S corporations are tax-deferred defined contribution plans. S ESOPs allow companies to provide compensation to employees through ownership interest in the company, like ESOP plans from C corporations. 

Among employers with an S ESOP retirement plan option, 57% offer it in addition to a pension or defined contribution plan, according to research released last month from Ernst & Young. 

The report analyzed trends in S ESOP retirement plans from 2002 through 2019, including S ESOPs’ net asset value, number of participants, average account balances and distributions to participants. The research also estimated benefits that accrue to employee-owners working for S ESOP firms.

The research, “Contribution of S ESOPs to Participants’ Retirement Security and Employee-Owner Benefits,” prepared for the Employee-owned S Corporations of America, found that ESOPs distribute 25% more per participant than 401(k) plans, on average.

Ernst & Young also found that the average total cumulative return per participant for S ESOPs from 2002 through 2019 was over $300,000, for a compound annual growth rate of 12.1%, one-third higher than the returns from the S&P 500 over that time, when its Total Returns Index grew at a compound annual rate of approximately 9%.

In addition, from 2002 through 2019, S ESOP participants received an annual average of $5,900, while 401(k) plans distributed an annual average of $4,700, the research showed. After the Great Recession, S ESOP participants received an annual average of $6,700, while 401(k) plans distributed an annual average of $5,400; S ESOPs distributed approximately $1,350 (or 24%) more to participants during this period.

“The findings are yet another data point demonstrating the relative strength of ESOP ownership inside a privately held company and the added benefits of having an ESOP not only to the company, but more importantly to the employees who own the company through the trust,” says ESCA President & CEO Stephanie Silverman. “Having an ESOP isn’t just about returns; it’s a cultural change, and it requires a lot of commitment from the company to the employee-owners.”

S ESOPs can accrue advantages that also benefit the business, a previous study on ESOPs from the National Center for Employee Ownership found. They serve as a retention tool as well as a cushion for employees to be more financially resilient in a crisis.

A typical S ESOP-owned corporation is 90% owned by employees, Silverman says.

“It’s important to remember that with an ESOP, almost all of the contributions to an ESOP account come from the company, virtually none come from employees themselves, so this is an added benefit provided by companies to employees as a way to enhance their retirement savings,” she explains. “In most, if not all of the other qualified retirement savings plans, employees are putting in their own money.”

She adds that S ESOP companies tend have a different outlook, and that having an S ESOP available changes the culture of a company. “People stay in their jobs longer and the company loses less energy, money, brand relationships, because they lose fewer people [and] turnover is lower,” she explains. “People work harder when they’re working for themselves.”

The IRS and Department of Labor regulate S and C ESOPs, which are not appropriate for every company, Silverman notes. The IRS’ tax code Section 409 T details, for example, “that these structures need to be broadly held, [and] you can’t start a sole practitioner business and then turn yourself into an S Corporation, because the law was intended to create [a] broad-based benefit to workers, and so there are anti-abuse rules that are pretty clear,” she says. In addition, owners of LLC corporations are not permitted, and ESOP participants cannot be non-U.S. nationals living outside of the U.S.

Retirement plan participants with an S ESOP available tend to benefit in other important ways not provided by 401(k)s and DC plans, Silverman adds.   

“While not every company outperforms the market, [the Ernst & Young research] is a very large sample of companies and a very strong proof point that there are cultural and other benefits inside of an ESOP that continue to increase their value and therefore the value to participants and give that extra layer of retirement security that employees might not get elsewhere,” she says.

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