Natixis Loomis Sayles Short Duration Income ETF (ticker LSST) combines the benefits of an ETF structure, including transparency and intraday trading, with the security selection, sector allocation, and risk management of an active investment approach.
Chris Harms, who is one of three portfolio managers on the team, explains why this actively managed ETF can be a building block in any diversified portfolio.
Why does short duration make sense right now?
For the last two years, the Fed has raised short-term interest rates. This has created concern among investors about loss of principal without sufficient yield to offset it. Through a short duration strategy like LSST, investors could gain exposure to the short part of the yield curve with a constant interest rate exposure.
It may also provide the added flexibility of increasing sector allocations in the form of credit or securitized credit. As portfolio managers, we actively monitor those allocations and will raise or lower them based on our forecasts. Yields are still low, but we believe this is a good time for investors to look at this portion of the yield curve and consider a fund that actively manages these allocations.
A unique aspect of this strategy is the ability to go outside of the benchmark and invest in areas like securitized credit. What other sectors do you and your team consider for LSST?
When most people look at short duration funds, they typically consider US government securities. While they do have a place in the portfolio, the ability to allocate to other sectors, such as asset-backed securities, investment grade corporate bonds, or high yield corporates, is something that the portfolio management team will actively work to do.
What stage of the credit cycle do you and the team think we’re in currently?
We believe we’re in the late stage of the credit cycle. This means that corporations’ growth is slowing and leverage is increasing. This may not appear to be a favorable outlook for allocating large amounts to the credit sector right now. However, we believe that Loomis Sayles’ research enables us to find some of the best available opportunities in the market.
Loomis Sayles believes that research expertise lies at the heart of every strategy, both top-down macro analysis and bottom-up security selection. How does your team incorporate this research into LSST?
On a daily basis, our portfolio management team interacts with approximately 60 corporate analysts, 15 securitized credit analysts, and approximately 50 fixed income traders. These interactions allow us to confidently make active sector and security decisions in the portfolio.
How do you and your team work to manage risk?
Managing risk in a fixed income portfolio is extremely important in today’s market. We strive to do so mostly through beta. Beta is a measurement of the spread, duration, and historical volatility of the underlying instruments and sectors. Increasing beta in a portfolio means you’re putting more risk on, while lowering beta in a portfolio means there’s less risk.
What’s your outlook for 2018?
We believe that 2018 will be a continuation of the Fed’s path of raising short-term interest rates. LSST is mostly investing in the short portion of the yield curve – from one to five years – where we think short-term rates will continue to rise. In our view, longer-term rates are under control or will be coming down as inflation still seems to be in the two percent range.
Duration refers to a bond's price sensitivity to interest rate changes.
Yield Curve is a curve that shows the relationship among bond yields across the maturity spectrum.
All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of March 29, 2018 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.
Before investing, consider the fund's investment objectives, risk, charges, and expenses. Visit im.natixis.com for a prospectus or a summary prospectus containing this and other information. Read it carefully.
ALPS Distributors, Inc. is the distributor for the Natixis Loomis Sayles Short Duration Income ETF. Natixis Distribution, L.P. is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, L.P.
The Fund is new with a limited operating history. Exchange-Traded Funds (ETFs) trade like stocks, are subject to investment risk, and will fluctuate in market value. Unlike mutual funds, ETF shares are not individually redeemable directly with the fund and are bought and sold at market price, which may be higher or lower than the ETF’s net asset value (NAV). Transactions in shares of ETFs will result in brokerage commissions, which will reduce returns. Unlike typical exchange-traded funds, there are no indexes that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. There is no assurance that the investment process will consistently lead to successful investing. Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity. Below investment grade fixed income securities may be subject to greater risks (including the risk of default) than other fixed income securities. Foreign and emerging market securities may be subject to greater political, economic, environmental, credit, currency and information risks. Foreign securities may be subject to higher volatility than U.S. securities, due to varying degrees of regulation and limited liquidity. These risks are magnified in emerging markets. Interest rate risk is a major risk to all bondholders. As rates rise, existing bonds that offer a lower rate of return decline in value because newly issued bonds that pay higher rates are more attractive to investors.