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Arrow Funds offers niche solutions to search for yield

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Earlier this year saw US asset manager Arrow Funds launch the Arrow Reserve Capital Management ETF (ARCM) on the Bats Global Markets Exchange.

Joe Barrato, chief executive office of Arrow Funds explains that this is a diversified, ultra-short term maturity fixed income portfolio that seeks capital preservation with maximum income. The ETF offers an alternative to traditional money market funds and bank deposits.

Founded in 2007, Arrow Funds manages USD750 million in a range of niche mutual funds and ETFs. Barrato is one of the founding members of the firm, having previously worked in the industry and before that for the Federal Reserve.

“The ARCM product is more of an intermediate bond solution in the short term if you are looking for a replacement for money market,” Barrato says. “The way I describe it as you have a checking account and a saving account, this is like a saving account but you get a lot more yield.”

ARCM is sub-advised by Halyard Asset Management. Barrato reports that over the last year an average money market delivered 9bps and ARCM’s underlying strategy, the institutional Halyard RCM Program, has delivered 97bps. Over three years, money market funds delivered an average of 6bps, while Halyard RCM delivered 51 bps.

“It is meaningful,” Barrato says. “When you look at the competitors they are taking on more risk.”

The hunting ground for yield for ARCM lies in short-term treasuries, muncipals and high quality one-year duration corporates. The fund’s investment approach prefers to stay away from mortgage-backed securities and volatile European corporates. The client base for the USD50 million ETF is institutional clients who are tactical with their cash. ARCM is sub-advised by Halyard Asset Management. Barrato confirms that Arrow is looking to launch a few more niche ETFs, designed to provide solutions to investment challenges.

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