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US structural credit ETF from Angel Oak is designed to bring diversity to fixed income offerings

Gill Wadsworth writes that a new competitor has entered the structured credit ETF space and amassed USD34 million in its first round of fund raising.

US-based Angel Oak Capital Advisors, which has USD20 billion in assets under management announced the release of its UltraShort Income ETF on 25 October with USD2 million in seed capital, a figure that has since grown to USD34 million by the start of November.

The ETF offers short-duration structured credit assets and cash-like instruments including a “sizable allocation” to non-agency residential mortgage-backed securities as well as asset-backed securities that seek to provide higher yield without sacrificing credit quality.

The UltraShort Income ETF is the first exchange traded product from Angel Oak and will be overseen by recent hire Ward Bortz who joins as head of ETFs.

Bortz says: “Having engaged with traditional active allocators who generally invested in mutual funds or separately managed accounts, I knew what tools they had available to them on the fixed income side. For ETF investors that toolset is very limited. The majority of ETF investors who want to allocate to fixed income ETFS can really only do so through corporate credit.”

Bortz, who was previously employed by BlackRock and Invesco both of which offer structured credit ETFs, says the ETF sector “is screaming for more structured credit opportunities”, particularly from investors seeking alternatives to cash in a high inflation environment.

He adds: “The asset-backed securities, mortgage-backed securities and collateralised loans are trading at incredibly attractive levels. We launched the ETF with USD2 million, and we’re already up at USD34 million in our first round, all driven by clients, who already have a large allocation to corporate credit and who want to diversify into opportunities that are high yield without sacrificing credit quality.”

According to Bortz, interest in the ETF has come from retail clients and institutional investors including pension funds, insurance companies and family offices.

“They love these types of securities, but they have not been able to access them easily in an ETF wrapper,” Bortz says “Investors recognise that they need to diversify their portfolios for times when corporates are underperforming.”

In terms of performance, Bortz does not give precise return objectives but instead notes: “The vast majority of the UltraShort ETF will be in investment grade, and the duration or the maturity of the bonds are going to be under one year. We’re really looking for as high returns as possible with a lot of stability.”

A second ETF from Angel Oak, which is yet to be listed, will offer higher return potential.

Bortz says Angel Oak will be “laser focused” on developing and growing its two initial ETFs in the coming year, but given the potential to grow AUM in the ETF space, the manager expects to launch more products into the field.

“We are laser focused over the next 14 months on executing on the ETFs we’ve just launched, and then 100 per cent our hope and expectation is that as we show success in our initial strategies, we are able to repeat that in other ETFs going forward.”

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