Products September 28, 2017

Investment Products and Services Launches

Hartford Funds expands fixed income ETF suite; Sage releases ESG Intermediate Credit Index; ICMA-RC opening investments to private sector.

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Hartford Funds Expands Fixed Income ETF Suite

Hartford Funds has launched its third actively-managed fixed income exchange-traded fund (ETF): The Hartford Total Return Bond ETF.

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This fund aims to provide investors with an actively managed core bond strategy that invests in U.S. government and corporate bonds, asset-backed securities, mortgage-backed securities, and foreign-issued securities. The strategy seeks to deliver a competitive total return with income as a secondary objective. HTRB has a total expense ratio of 0.39%.

“Advisers recognize that fixed-income offerings are a critical foundation of an investment portfolio,” says Vernon Meyer, chief investment officer of Hartford Funds. “We created another fixed income ETF to offer investors more options to optimize their fixed income exposure across all market sectors, which may help them to diversify their investments and reach their long-term goals.”

The fund will be sub-advised by Wellington Management Company. The HTRB joins two other actively-managed, Hartford fixed income ETFs sub-advised by Wellington. These funds are the Hartford Corporate Bond ETF, an ETF focused on investment-grade corporate bonds; and the Hartford Quality Bond ETF, a core bond ETF focused on investment grade debt including mortgage-backed securities and U.S. government securities.

Hartford Funds plans to launch two more actively-managed ETFs in the fourth quarter of 2017. These options would be the Hartford Schroders Tax-Aware Bond ETF, which would be sub-advised by Schroder Investment Management North America; and Hartford Municipal Opportunities ETF, which would be sub-advised by Wellington.

For more information visit, hartfordfunds.com.

Sage Releases ESG Intermediate Credit Index

Fixed-income investment manager Sage Advisory Services has launched The Sage ESG Intermediate Credit Index. It uses a proprietary environmental, social and governance (ESG) factor analysis framework and a rules-based selection process in order to maximize exposure to positive ESG characteristics, while maintaining a high level of liquidity.

The index uses a three-pronged approach to select between 100 to 120 investment-grade securities with a minimum tranche size of $500 million from the Barclay’s Intermediate Credit Bond Index, and an issuance date within the last three years.

Sage says selection also relies on whether securities meet a proprietary ESG score, and fall within the top third of the group to which Sage categorizes them. They must also meet a controversy rating that flags to investors the potential environmental and social risks associated with the security.

“ESG is rapidly gaining traction with both institutional and individual investors, and we’re seeing the positive impact of these conscious investments across a wide range of sectors and causes,” says Robert G. Smith, president and chief investment officer at Sage Advisory. “With the Sage ESG Intermediate Credit Index, we’ll achieve our goal of providing an institutional quality index that further accelerates the momentum gained to date.”

Wilshire Associates will be retained as index consultant and calculation agent.

For more information, visit wilshire.com/indexcalculator/poweredbywilshire.htm.

ICMA-RC Opening Investments to Private Sector

ICMA-RC, which has spent the last 45 years serving public-sector retirement plans, is now making the VT PLUS Fund and certain Vantagepoint Funds managed by ICMA-RC available to private-sector defined contribution (DC) plans on an investment only basis. 

The VT PLUS Fund and the Vantagepoint Funds are collective investment trusts (CITs).

“We expect that making the Vantagepoint Funds available to private-sector employers will benefit public-sector plan sponsors through asset growth, which is likely to produce economies of scale,” says ICMA-RC president and CEO Bob Schultze. “This is a positive step for ICMA-RC, our current public-sector clients, and private-sector plan participants who can now invest with us.”

The DCIO expansion will be managed by a team of veteran investment professionals.

Craig Lombardi, managing vice president of DCIO, will be responsible for the overall growth and development of DCIO sales to institutional investors and their advisers. Forrest Wilson, vice president, Institutional Sales, DCIO, is responsible for DCIO sales in the private-sector institutional market.

Lombardi, Wilson and several others aim to help plan sponsors improve the investments made available to their participants. ICMA-RC says, “The Vantagepoint Funds’ multi-manager approach is designed to avoid the risk of concentrated reliance on the results of a single manager. The Funds’ approach blends investments from multiple sub-advisers with complementary characteristics to broadly diversify ideas, strategies, and styles in an effort to provide attractive returns while minimizing risk.”

 

Investing September 28, 2017

Boutique Consultants Want to Serve More Mid-Sized Plans

Choosing passive investments is a clear and simple way to reduce fees; however, choosing the fund with the cheapest expense ratio does not “equate to checking the fiduciary box,” Cerulli warns.

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The latest research from Cerulli Associates, “U.S. Defined Contribution Distribution 2017,” outlines the various challenges and opportunities faced by defined contribution investment only (DCIO) service providers, as well as those faced by “boutique retirement plan consultancies.”

Speaking broadly, both groups are seeing strong and increasing demand for passive investment strategies from plan sponsors. Unfortunately, a lot of the passive momentum seems to be supported by the misunderstanding held by many plan sponsors that offering participants passive investment options absolves them of fiduciary responsibility. 

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“Despite significant efforts from consultants and asset managers seeking to dispel this misconception, it continues to exist,” Cerulli researchers warn. “Furthermore, demand for passive investment strategies is closely tied to the third-ranked challenge identified by asset managers—pressure on investment management fees.”

Choosing passive investments is a clear and simple way to reduce fees; however, choosing the fund with the cheapest expense ratio does not “equate to checking the fiduciary box,” Cerulli warns, as some plan fiduciaries mistakenly believe.

According to Cerulli, the bull market lasting nearly 10 years has also hurt active management as indexed strategies experienced strong returns. Related to this, Cerulli sees active managers focusing their sales resources on a subset of strategies that have strong, established track records in sub-asset classes that are not being targeted as “easy areas to go passive.”

Interesting to note, nearly one-third of DCIO service providers identify the $100 million up to $250 million plan asset segment as the greatest growth opportunity. Cerulli researchers say it is “striking how much interest is expressed in the segment,” more than twice the second-ranked segments of $25 million to $49.9 million and $50 million to $99.9 million.  

“The midsized plan asset segment, and certainly this smaller component of it, is also representative of the DC market segment in which the boutique DC consultant is most prevalent and growing its market share,” Cerulli reports. “Asset managers seeking to work with these plans should have a holistic strategy in place for covering both national and regional boutique DC consultants. For example, they may choose to coordinate coverage between consultant relations and more retail-oriented groups focused on the broker/dealer and/or registered investment adviser channels.”

TDF market evolution in focus

Among other topics, the Cerulli analysis also examines evolution in the target-date fund (TDF) marketplace. As Cerulli researchers lay out, the TDF market remains highly competitive, and data shows that new entrants face challenges in winning mandates over more established products.

“This raises the question of why firms choose to launch additional target-date series. For example, some target-date managers have chosen to offer an additional ‘flavor’ of target-date fund investing in response to the current hyper-sensitive fee environment. Some firms with long-standing active target-date series have recently launched indexed or blended (using elements of both active and passive investing) target-date series to keep up with industry-wide demand for low-cost, passively managed investment products,” Cerulli explains.

One example cited by the firm is the launch in 3Q 2016 of a TDF that uses exchange-traded funds (ETFs) as the underlying investment vehicles. Other firms have taken the opposite approach by launching its equity-heavy and tactically managed TDFs.

“When comparing these two different series, differences in equity allocations can be greater than 30% depending on the point along the respective glide paths,” Cerulli concludes. “We encourages asset managers contemplating the launch of an additional target-date series to conduct a thorough assessment in regards to how a new potential series would be positioned relative to their existing target-date products. Will a new TDF help new segments of the DC market? What is the risk of a new target-date series cannibalizing asset flows from the existing target-date series?”

Information on obtaining Cerulli research is available here. 

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