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In the latest example of a mutual fund company making the move to ETFs, ArrowFunds, the Maryland-based firm which currently has five mutual funds in its lineup, is now an ETF advisor as well. The company launched its first fund, under the ArrowShares brand name, the Dow Jones Global Yield ETF (GYLD - ETF report) looking to give investors a new way to play the high yield market from a global perspective.
GYLD In Focus
This global ETF looks to provide exposure to both traditional and alternative sources of yield around the globe by following the Dow Jones Global Composite Yield Index. The product looks to have an equally-weighted methodology with quarterly rebalancing in order to prevent a heavy concentration in any one sector (see more in the Zacks ETF Center).
These market segments include; sovereign debt, equities, real estate, alternatives, and corporate debt. Each segment will consist of 30 holdings, giving the product a total basket of 150 securities.
With this approach, the fund looks to produce a composite yield of about 7.4%, ensuring that the product is an impressive destination for yield hungry investors. However, fees are relatively high in the fund as the management fee does come in at 75 basis points a year, although this is generally in-line with other global ETFs (read Looking For Income? Try High Yield Muni ETFs).
It should also be noted that the product does have a significant focus on financials (28%), communications (16%), and energy (12.7%), while government securities account for about 20% of exposure as well. In terms of country allocations, the U.S. takes the top spot at about 40%, while Australia and Singapore round out the top three.
Competition in the High Yield ETF Market
The main competitor to the brand new GYLD looks to be the Morningstar Multi-Asset Income Index Fund (IYLD - ETF report). This product isn’t very old either, having debuted about a month ago, although it does see decent volume of about 25,000 shares considering it has only $9 million in AUM.
However, investors should note that this product is structured as a fund-of-funds, holding nine high yielding ETFs in its portfolio. Currently, exposure is tilted towards bonds as five of the ETFs in the basket are fixed income ETFs including both of the top two holdings (read Are The Fundamental Bond ETFs Better Fixed Income Picks?).
This structure does produce an interesting scenario from a fee perspective though, as the management fee comes in at just 0.25%. Yet, when adding in the acquired fund fees—and subtracting out a fee waiver—the net expense ratio comes in at 60 basis points a year, still less than GYLD although much more competitive.
Room For Two?
Although IYLD hasn’t exactly added a great deal of assets so far in its short time on the market, there is definitely promise in the fund. The product—much like GLYD—could see increased interest from investors seeking a diversified way to obtain yield across a variety of sectors (read Three Great ETFs For Your IRA).
Given this trend, and the continued easy money policies from central banks around the world, it seems likely that these high yield focused ETFs could see a large amount of interest from a great deal of investors. As a result, ArrowShares could, if current income remains in demand, have a winner on its hands in its first foray into the ETF world.
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