Federated enters ETF market with 2 active bond funds

Federated Hermes, a $645 billion asset manager largely concentrated in the money market space, is dipping a toe into ETFs with two actively managed fixed-income strategies it filed with the Securities and Exchange Commission Thursday afternoon.

Once approved and launched, the short-term corporate bond strategy and short-term high-yield bond strategy will remove Federated from the list of the few remaining major asset managers without exchange-traded fund offerings.

“Our long-term strategy around ETFs is we’re aware that the way clients access investment expertise continues to evolve,” said Brandon Clark, who joined Federated in July 2020 as director of ETF business.

“We’re seeing more and more activity in ETFs,” Clark said. “This is the way to meet our clients where they are. From our perspective, this is a way to deliver our expertise in another vehicle.”

Prior to joining Federated, Clark held similar positions at Legg Mason and the The Vanguard Group, where he was instrumental in developing ETF lineups.

While this represents the first official move into the ETF space for the Pittsburgh-based asset manager, Federated filed plans to launch an ETF 10 years ago.

The plan, which was not followed through, involved an ultra-short-term strategy that would have amounted to a higher-yielding money market fund.

Across Federated’s current lineup of mutual funds and separate accounts, the company has $91 billion in fixed-income strategies and $100 billion in equity strategies. The remaining $454 billion is in money market funds.

With the ETF industry experiencing record growth in 2021, Federated still has the potential to find a niche with its late move into the space, said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

“The industry has shifted significantly to where asset managers that have a long-established presence in the mutual fund world have had success in gathering ETF assets,” Rosenbluth said. “The adoption of active fixed-income ETFs has grown significantly.”

As examples of the potential appetite for active fixed-income ETFs, Rosenbluth cited the success of the $4.3 billion Pimco Active Bond ETF (BOND), the $3.1 billion SPDR DoubleLine Total Return Tactical ETF (TOTL) and the $2 billion Fidelity Total Bond ETF (FBND).