New fixed income ETMF from Reinhart Partners
Reinhart Partners is listing a new fixed income ETMF using the Eaton Vance patented NextShares framework. The Reinhart Intermediate Bond NextShares (RPBIC) will attempt to outperform the Barclays Capital Intermediate Government/Credit Index. It will invest primarily in investment grade bonds, mostly with intermediate maturity dates of 3 to 10 years. The fund can invest in almost any kind of investment grade bonds.
RPBIC will chose its bonds in three steps. First, the credit ratings of the issuer will be assessed. Second, the movements of each issuer’s bonds will be reviewed in order to get the market’s perspective of each issuer. Third, Reinhart brings in its own internal research. According to the prospectus, Reinhart has developed a “Causes of Financial Distress Methodology” to determine an issuer’s credit quality.
On the sell side, RPBIC can ditch the bonds that it holds for four reasons: duration management, relative value, sector allocation changes and credit deterioration. The fund is also allowed to swap into 100% cash for “temporary defensive purposes”, the prospectus says.
Analysis – NextShares ETMFs: the basics
NextShares ETMFs are only two years old. They have 18 issuers signed up to use the framework yet assets have been a slow draw. ETMFs are essentially non-transparent actively managed ETFs, and something of a compromise between ETFs and close-ended mutual funds. Advisers like the ETMF framework because its non-transparency means they can hide their investment ideas from competitors. But they also like that they trade on exchange, because it comes with tax, paperwork and cost advantages. While traded intraday, ETMFs do not have an iNAV – meaning they aren’t actually priced until close of trading. The price an investor pays for any ETMF is determined by the NAV as well as a premium/discount determined when the trade is made.