Investment Products and Services Launches

Vanguard has launched Vanguard Total Corporate Bond ETF (VTC), expanding its U.S. fixed income fund roster to 17 exchange-traded funds (ETFs) and 51 indexed and actively managed mutual funds.

The fund offers investors low-cost exposure to the broad U.S. investment-grade corporate bond market through a single fund.

The new fund seeks to track the Bloomberg Barclays U.S. Corporate Bond Index and trades on the NASDAQ stock exchange with an expense ratio of 0.07%. It is structured as an ETF of ETFs, investing directly in Vanguard’s three existing, low-cost corporate bond ETFs: Vanguard Short-Term Corporate Bond ETF (VCSH), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), and Vanguard Long-Term Corporate Bond ETF (VCLT).

The ETF of ETFs structure enables the fund to immediately access more than 5,500 U.S. corporate bonds by taking advantage of the existing exposure and scale offered by the underlying ETFs. This approach achieves near complete replication of the benchmark at the fund’s inception as well as tighter bid/ask spreads and lower operating expenses than investing directly in the benchmark’s constituents.

While the expense ratio is a meaningful metric in the ETF evaluation process, Vanguard encourages investors to examine other factors.

“As mutual fund and ETF costs continue to compress, the relative benefit to choosing the cheapest fund diminishes,” says Rich Powers, Vanguard head of ETF Product Management. “When choosing among similarly priced funds, we suggest investors consider elements beyond the expense ratio, such as investment strategy, methodology, tracking difference, spreads, tax efficiency, and brand.”

BNP Expands Partnership with Janus Henderson to Include U.S. Services

Janus Henderson Investors has announced that BNP Paribas Securities Services will assume responsibility for the majority of Janus Henderson’s back office (including fund administration and fund accounting), middle office and custody functions in the U.S. 

As part of this partnership, more than 100 Janus Henderson employees currently providing middle and back office functions in the U.S. will become employees of BNP Paribas.

This outsourced model is said to provide a single and consistent global platform to support the global growth of Janus Henderson. The partnership will leverage the broader expertise of BNP Paribas to provide best practice and leading industry approaches to global regulatory and industry issues. 

Andrew Formica, co-chief executive officer at Janus Henderson Investors, says: “The expansion of our partnership with BNP Paribas to include U.S. services is yet another benefit to clients resulting from the merger between Janus and Henderson. BNP Paribas has been an excellent partner since we began our relationship more than 15 years ago.”

This partnership is part of BNP Paribas’ 10-year strategic build-out of the firm’s Securities Services business in the U.S., which began with the launch of global and U.S. custody in 2012. BNP Paribas is committed to growing its presence in Denver where one of the firm’s fund servicing hubs will be located.

Claudine Gallagher, Americas head of BNP Paribas Securities Services, says: “We are excited to expand our capabilities for asset managers in the U.S. through this partnership, and look forward to providing high-quality service to Janus Henderson and its clients.”

BNP Paribas will pay Janus Henderson net consideration of approximately $36 million for the operations upon closing, which is anticipated for March 2018.

First Trust Announces ETF Launches

First Trust Advisors L.P. has launched a new index-based exchange-traded fund (ETF), the First Trust SMID Cap Rising Dividend Achievers ETF; and an actively managed ETF, the First Trust Municipal High Income ETF.

The SMID Cap Rising Dividend Achievers fund seeks investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the Nasdaq U.S. Small Mid Cap Rising Dividend Achievers Index. The Index is designed to provide access to a diversified portfolio of small- and mid-cap income producing securities. The Index construction process looks beyond just yield and analyzes the financial health of a company and its ability to maintain dividend increases by including a blend of historical and forward looking factors to screen for high quality dividend-growers.

High quality dividends are often associated with larger, well-established companies. However, smaller companies with strong balance sheets and financial flexibility may also provide a good source of income as well as capital appreciation and dividend growth potential. “In our opinion, dividends are often a sign of strong corporate health, and dividend increases may signal growing confidence from management,” says Ryan Issakainen, CFA, senior vice president, exchange-traded fund strategist at First Trust. “While many dividend ETFs focus on large-cap stocks, we believe strong dividend policies are just as important for small- and mid-cap stocks. This ETF seeks to provide exposure to small- and mid-cap stocks that may be well-positioned for dividend growth.”

The First Trust Municipal High Income ETF seeks to provide federally tax-exempt income with a secondary objective of long-term capital appreciation. The fund is managed by First Trust using a approach that focuses on a combination of quantitative analysis and fundamental research. In seeking attractive income, the fund will focus on non-rated bonds, lower investment-grade bonds and below investment-grade or “high yield” municipal bonds, while offering daily liquidity and full transparency of holdings.

“Our experienced municipal securities team at First Trust employs a rigorous, disciplined approach to managing risk, while seeking to capitalize on opportunities,” says Issakainen. “Investor demand for tax-free income continues to grow, even as interest rates remain stubbornly low. For investors willing to take additional credit risk in pursuit of higher levels of tax-free income, we believe that active management is paramount.”

The municipal securities team at First Trust sees ample opportunities in municipal bonds. In their view, credit fundamentals are improving for many municipal bond issuers and taxable equivalent yields are attractive relative to other fixed income asset classes. Given the rising interest rate environment as a result of stronger economic growth, they believe that, in the current market, positioning the fund along the intermediate portion of the yield curve provides investors less interest rate sensitivity than longer duration portfolios.

Johnathan N. Wilhelm, senior vice president and Tom Futrell, CFA, senior vice president at First Trust, serve as senior portfolio managers of the fund. The two will share responsibilities for the day-to-day management of the fund’s investment portfolio.

For more information about First Trust, please contact Ryan Issakainen at (630) 765-8689 or RIssakainen@FTAdvisors.com.

Eastern Shore Unveils New CIT for Equity Strategy

Eastern Shore Capital Management has announced the launch of the Eastern Shore U.S. Small Cap collective investment trust (CIT), providing investors with a commingled vehicle for the Eastern Shore Small Cap Equity strategy.

The strategy reached its 10 year anniversary earlier this year and has generated 5.3% annualized alpha versus the Russell 2000 since its March 2007 inception. Due to its quality orientation, the strategy has achieved these results with a lower standard deviation than the Russell 2000: 17.6% versus the Russell 2000’s 19.7%.

Eastern Shore launched the CIT to provide institutional investors a vehicle that could be incorporated into defined contribution (DC) plans. The Eastern Shore U.S. Small Cap CIT received its initial funding from a Taft-Hartley plan in September 2017.

As an incentive for early adopters, Eastern Shore is offering a Founders’ Share class with a fee of 65 basis points. This fee will be available to investors until assets in the CIT reach $50 million. The standard fee on the CIT is 80 basis points.

The Eastern Shore Small Cap Equity strategy is also available to institutional investors in separately managed accounts. An early adopter fee of 70 basis points is available on all accounts that fund prior to strategy assets reaching $400 million.