Investment Product and Service Launches

Vanguard lowers fees for Target Retirement Trusts; State Street Global Advisors announces new bond ETF; Bernstein Research launches Alphalytics; and more.

Vanguard Lowers Fees for Target Retirement Trusts

Vanguard has announced it is lowering fees for its Target Retirement Trusts by 5% to 10% across the board, saving investors an estimated $20 million.

Effective as of April 1, fees will fall between 0.25 basis points (bps) and 0.5 bps, depending on which program a client is invested in.

This fee reduction for Vanguard Target Retirement Trusts follows Vanguard’s announcement in December of new lower minimums for the Vanguard Institutional Target Retirement Funds. The lower minimums saved investors an estimated $16 million as more participants gained access to lower-priced funds.

Vanguard Target Retirement Trusts are organized as collective investment trusts (CITs), a type of pooled account that capitalizes on the economies of scale of larger workforces to lower costs. The trusts offer multiple price points so clients can reap the benefits of lower fees as plan assets grow.

On average, this price-point structure has reduced Target Retirement Trust fees by about 2% a year, totaling $25 million in point-in-time savings to investors since the Trusts’ 2006 inception.

State Street Global Advisors Announces New Bond ETF

State Street Global Advisors, the asset management business of State Street Corp., has launched a new exchange-traded fund (ETF), the SPDR Bloomberg Barclays Emerging Markets USD Bond ETF (EMHC). The fund was developed to provide exposure to U.S. dollar-denominated debt issued by sovereign and quasi-sovereign emerging market issuers.

EMHC may provide investors with an attractive source of income and diversification benefits due to emerging markets debt’s low historical correlation to other global bond sectors.

“With yields relatively low across U.S. bond markets, investors are increasingly looking elsewhere to generate income,” says Sue Thompson, head of SPDR Americas distribution at State Street Global Advisors. “Emerging market debt has seen solid growth over the last decade, however, we believe many investors may be under-allocated to this asset class. EMHC provides a convenient and cost-effective means to access emerging market debt while guarding against short-term fluctuations in the dollar.” 

The SPDR Bloomberg Barclays Emerging Markets USD Bond ETF seeks to track the Bloomberg Barclays Emerging USD Bond Core Index. This index measures the performance of fixed-rate U.S. dollar-denominated debt issued by sovereign and quasi-sovereign (government owned and government guaranteed) emerging market issuers. It includes bonds with a minimum par outstanding amount of $500 million, a remaining maturity of at least two years and an original maturity of greater than five years. Bonds rated Caa3/CCC-/CCC- or lower or Aa3/AA-/AA- or higher by any of Moody’s Investors Service Inc., Standard & Poor’s Financial Services LLC and Fitch Inc., respectively, are excluded from the index.

Bernstein Research Launches Alphalytics

Bernstein Research, the global sell side research arm of AllianceBernstein L.P., has officially rolled out its “Alphalytics” tool to better quantify and effectively measure the skill sets and value of the global asset management industry.

Alphalytics measures portfolio manager success by identifying idiosyncratic alpha, or alpha that is generated uniquely by a particular asset manager. Through a web-based platform, Alphalytics analyzes, compares and identifies idiosyncratic returns, long-term and tactical style tilts, and other attributes for thousands of asset management products spanning various asset classes.

Asset owners can use the tool to identify products that best suit their needs and construct fund portfolios that offer the desired style exposures and the most diversified returns. Additionally, asset managers can leverage Alphalytics to measure a manager’s skill and value, as well as diagnose and fix problems.

“We believe that providing both asset owners and managers with easy-to-use tools to quickly address complex questions, such as identifying manager skill, is a critical component to the investment process,” says Robert van Brugge, CEO, Bernstein Research. “We’ve seen steady client demand and believe that our research and product road maps have set us up on the right path to innovation as we continue to evolve the offering to better service our users.”

“Bernstein’s research has shown that idiosyncratic alpha in fixed income and equities is persistent over time, and can predict future excess returns,” said Alla Harmsworth, head of Bernstein European quant strategy and head of Alphalytics. “Through the launch of our fixed income module, we’re adding validity to the platform and will continue to innovate and expand into other asset classes such as alternatives, as well as adding new portfolio construction workflows, including optimization.”

To measure the progress of Alphalytics, Bernstein created an advisory board of representatives from leading institutional asset owners and users. The advisory board members use the platform to screen the active management industry for products with the best record in generating consistent, non-replicable value, in addition to monitoring the progress of existing managers. This board meets regularly to share feedback and ideas on the development of Alphalytics, as well as to address industry and market trends and to navigate investment issues.

Vanguard Launches First Actively Managed Bond ETF

Vanguard has introduced its first actively managed bond exchange-traded fund (ETF), managed by its in-house fixed income team.

The ETF, which is listed on the Chicago Board Options Exchange (Cboe), has an expense ratio of 0.10%, compared with the average expense ratio for ultra-short-term bond ETFs of 0.22%.

“Vanguard Ultra-Short Bond ETF offers the features of an ETF structure for investors seeking an option for anticipated cash needs in the range of six to 18 months,” says Kaitlyn Caughlin, head of Vanguard Portfolio Review Department. “An ultra-short strategy bridges the gap between money market funds offering a stable share price and short-term bond funds, which are meant for longer investment time horizons.”

Vanguard Ultra-Short Bond ETF offers a similar strategy to that of the $17.5 billion actively managed Vanguard Ultra-Short-Term Bond Fund, which debuted in 2015. Both the fund and the new ETF invest in diversified portfolios consisting of high-quality and, to a lesser extent, medium-quality fixed income securities, including investment-grade credit and government bonds. The ETF provides investors and advisers the flexibility to trade at intraday market prices and invest by buying one share.