SS&C ALPS Advisors has teamed with Smith Capital Investors to launch a fixed-income ETF that looks to achieve above-average total returns using both current income and capital appreciation.
The ALPS | Smith Core Plus Bond ETF (SMTH) is an active ETF that focuses on risk-adjusted returns while preserving capital. It uses the Bloomberg U.S. Aggregate Bond Index as its benchmark and will be managed by Gibson Smith, founder and chief investment officer of Denver-based Smith Capital Investors, according to the firms.
The two firms partnered previously on a total return mutual fund and saw a partnership for the ETF as a natural extension of that relationship, according to Paul Baiocchi, chief ETF strategist at SS&C ALPS, which is also based in Denver.
“Building on the success of the mutual fund was part of the reason we decided to launch an ETF with Gibson and his team,” Baiocchi said. The infrastructure was already in place with Smith’s boutique firm, he added, saying “there’s no reason to look elsewhere for a capability that’s going to compete in the same segment.”
To achieve its investment objective, the ETF invests at least 80% of its net assets in bonds during normal market conditions, according to the firm. The bonds include government notes and bonds, corporate bonds, convertible bonds, commercial and residential mortgage-backed securities, and zero-coupon bonds.
The ETF operates as a portfolio core that is allocated to fixed income. It is an active investment, which is a staple of the funds Smith Capital manages. Smith said active has demonstrated greater success than traditional passive investments.
“Through an active process we can create portfolios that have less risk and have tended to outperform the brand-based indices,” Smith said.
Smith has extensive experience working with fixed-income products after having worked at Denver-based Janus Capital Group, where he built the firm’s fundamental fixed-income practice to $42 billion from more than $5 billion, according to ALPS. Selecting Smith as the ETF’s sub-advisor continues a trend at ALPS where the firm seeks out suitable expertise to manage its funds.
The recent addition gives ALPS 20 proprietary ETFs and more than $20 billion in assets under management, according to the firm.
The latest ETF has an expense ratio of 59 basis points; since it’s an active ETF, it will require a three-year track record before it gets on the major platforms, Baiocchi explained. In the meantime, the firms will be selling the product directly through the RIA channel.
With so many ETFs already in the market, he is optimistic that SS&C ALPS Advisors’ affiliation with Smith Capital will help the ETF stand out in an already-crowded market.
“Moving people off the passive view of the market is certainly a challenge,” Baiocchi said, “but it’s a challenge we think is worth leading head-on because we do think that, especially in the fixed-income category, active managers like Gibson … add tremendous value over the long term.”