Day Hagan Asset Management and Ned Davis Research have augmented their partnership with the launch of a second ‘smart sector’ ETF, this time focused on fixed income markets.
Brian Sanborn, Senior Vice President of Wealth Management Solutions, Ned Davis Research.
Listed on NYSE Arca, the Day Hagan/Ned Davis Research Smart Sector Fixed Income ETF (SSFI US) aims to deliver a total return, consisting of income and capital appreciation.
It comes with an expense ratio of 0.79%.
The partners’ original collaborative ETF was the equity-focused Day Hagan/Ned Davis Research Smart Sector ETF (SSUS US), also listed on NYSE Arca, which has delivered robust performance since its launch in early 2020 and gathered in excess of $300 million in assets.
The new fund seeks to achieve its investment objective by investing principally in unaffiliated fixed income ETFs that provide exposure across nine fixed income categories.
These categories are US investment-grade corporate, US long-term Treasury, US mortgage-backed securities, international investment-grade bonds, US TIPS, US high-yield bonds, emerging market bonds, US floating rate notes, and US dollar cash.
Portfolio managers at Day Hagan actively manage the fund, but asset allocation is determined by NDR’s Fixed Income Model.
The model combines macroeconomic and technical indicators which evaluate the relative attractiveness of underlying funds across the nine categories to reallocate assets from categories with unfavourable characteristics to areas providing the greatest opportunities while protecting capital during weak economic environments by lowering duration and reducing credit risk.
The indicators focus on the risk/reward characteristics of each category with the goal of investing in the areas that have the highest probability of maximizing total return. By combining multiple and diverse indicators, which historically have been shown to add value in category allocation decisions, the model seeks to objectively assess the weight of the evidence and generate category allocation recommendations.
According to the ETF’s prospectus, at any point in time, the allocation to a particular category may range from 0% to more than 25%. The portfolio managers use a daily risk management model developed by NDR to decide when to reduce and return allocation to the impacted categories.
The fund may invest without any constraints as to the duration, maturity, and country of domicile (including emerging market countries) of the securities, and certain of the underlying funds may hold debt securities of any credit quality including junk bonds.
The fund is presently populated with ETFs exclusively from State Street Global Advisors and Vanguard, namely FLRN, SPBO, SPTL, VWOB, BNDX, VTIP, VMBS, SPHY, plus cash, with allocations currently ranging from 2.4% (cash) to 23.4% (US Treasuries, SPTL).
Commenting on the launch, Brian Sanborn, Senior Vice President of Wealth Management Solutions at NDR, said: “We are very excited and proud to launch another ETF with Day Hagan. The SSFI ETF applies NDR’s 360-degree approach of combining macro, fundamental, technical, and behavioural data with the goal of delivering excess returns while protecting against catastrophic losses. We believe that this strategy will help investors tactically navigate the fixed income market and is a great complement to the SSUS ETF for US asset allocation decisions.”