AllianceBernstein joins Wall Street ETF mania with active bond funds

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(Bloomberg) – AllianceBernstein Holding LP is launching two actively managed exchange-traded funds on Wednesday, becoming the latest major asset manager to enter the $6.6 trillion ETF industry despite a brutal rout in markets.

The AB Ultra-Short Income ETF (ticker YEAR) will invest in high quality US government bonds and corporate bonds which will generally have an average duration of less than one year. The AB Tax-Aware Short-Duration Municipal ETF (TAFI) will invest in municipal bonds that pay interest exempt from federal income tax. While YEAR has an expense ratio of 0.25%, TAFI’s is 0.27%.

AllianceBernstein tracks major holdouts — such as Capital Group and Neuberger Berman — that gave in to the ETF rush this year. More ETFs debuted in the first eight months of this year than in the same period in previous years. Fund managers continue to see opportunities in the investment vehicle, undeterred by the market meltdown that wiped out more than $500 billion in sector assets this year.

The ETF industry “is maturing, but it’s by no means mature,” said Noel Archard, global head of ETFs at AllianceBernstein. “There is still a lot of room for the transition to happen from client portfolios.”

Investors are looking for short-term assets as they expect the Federal Reserve to continue to aggressively raise interest rates after stronger-than-expected inflation on Tuesday. The $21.9 billion JPMorgan Ultra-Short Income ETF (JPST) has seen weekly inflows in 12 of the past 14 weeks.

As AllianceBernstein prepared to launch its first ETFs, it “expected the year to be a bit volatile with the potential for rate increases,” Archard said.

“It happened a lot more than we thought,” he said.

The asset manager, which was overseeing $667 billion at the end of last month, is also considering offering equity ETF futures, Archard said. While a handful of issuers that have launched active equity ETFs have started using a structure that partially shields the fund’s holdings, AllianceBernstein plans to offer transparent ETFs wherever possible, he said. .

The company brought in industry veterans as it delved into the ETF industry. After hiring Archard from State Street Global Advisors earlier this year, the firm has also hired Jason Thalmann from JPMorgan as Head of ETF Product Delivery and Brett Sheely from BlackRock Inc. as Head of ETF Specialists.

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