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Specialist US insurance ETF fights on through liquidity crunch


Aware Asset Management is an affiliate of Blue Cross and Blue Shield of Minnesota and focuses on the management of US insurance industry assets.

Insurance allocators have over USD30 trillion in investable assets. However, the options of where to invest their money is often limited due to the complex web of regulations governing the insurance sector.

Aware Asset Management, an affiliate of Blue Cross and Blue Shield of Minnesota focused on the management of US insurance industry assets, has launched the Aware Ultra-Short Duration Enhanced ETF (AWTM), one of a small subset of ETF products assigned the National Association of Insurance Commissioners (NAIC) 2A designation.

The NAIC designation allows for more favourable risk-based capital (RBC) requirements treatment. Andrea Roemhildt, Investment Manager at Aware Asset Management and Mary Gronseth, a portfolio specialist, explain that the short-end of the yield curve is beneficial for investors as it has less exposure to interest rate risk and market volatility due to its duration. 

Their ETF, AWTM is an actively-managed, diversified, ETF geared toward insurance companies’ treasury management teams. The fund seeks to maximise current income targeting a yield of 0.75 per cent to 1.00 per cent over the three-month Treasury Bills while maintaining preservation of capital and daily liquidity.

Unless an ETF has the NAIC rating, the ETF is treated as an equity, which has a higher risk charge, Gronseth explains. The firm had used ETFs for five years prior to the launch of AWTM in 2019.

“We have purchased other ETFs for beta exposure or exposure to an asset class that we wanted exposure to while waiting for board approval to enter into a long-term relationship with an investment manager,” Gronseth says. 

“We like their liquidity and we much prefer them to mutual funds because of their lower fees and the intraday net asset value.”

AWTM has USD392 million in assets as of 20.4.20 and the affiliated insurance company’s use of ETFs across the whole firm fluctuates between five and 10 per cent.

The driver behind the launch was that they could earn more than Treasuries or other short-term options and also allow them to market the ETF outside of the firm to other insurance companies and also to retail investors, through platforms.

“It adds an additional layer of liquidity and we liked the idea of earning more than traditional liquidity instruments,” Gronseth says. “And we knew we could do that as we had done it in the past.”

The entire insurance portfolio of the parent firm is USD4 billion, with USD2.3 billion in investment grade fixed income, managed by Aware, and the remainder managed by external managers. 

The volatility of early 2020 hit the fund, just as any other in the sector, but the Fed’s announcement in March that it would buy high grade investment bonds and ETFs in that sector established a floor for the assets.

Roemhildt says: “We are hoping for more stability in the space. We anticipated some pain and pressure but nothing as extreme as it was in the ultra short space, because most of the time the instruments are virtually at maturity, at par, so you wouldn’t expect then to deviate from par – it’s been a learning experience for everybody.”

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