AllianceBernstein continued its push into the ETF space this week with the launch of the AB High Yield ETF (HYFI), which is the firm's first mutual fund to ETF conversion.
The new fund, which lists on NYSE ARCA, will invest at least 80% of its assets in U.S. high-yield corporate bonds, which can include fixed-income securities rated Ba1 or lower by Moody's, BB+ or lower by S&P Global Ratings or Fitch Ratings, or comparable unrated securities, according to the firm.
The goal is to provide income focusing on three main objectives: broad diversification, dynamic beta exposures and AB’s quantitative and fundamental research.
The launch is the latest ETF in AB’s product line. However, it is the first instance where the firm converted an existing mutual fund into an ETF with a similar strategy.
“It’s a pretty crowded shelf in the mutual fund space, but not as crowded when you think about the active high yield ETF space,” said Noel Archard, global head of ETFs at AllianceBernstein. “This made sense from a conversion perspective as a way of broadening out the accessibility of a great management team and bringing that to the marketplace.”
The original mutual fund, the AB High Yield, made sense to convert into an ETF because it was 10 years old, accumulated $67 million in assets under management and had a good track record, Archard said.
Those who had been investors in the mutual fund had the opportunity to redeem their shares prior to the conversion. Those remained automatically transferred over to the ETF, according to the firm. The conversion is not a taxable event and attributes of the mutual fund such as performance, holdings, and characteristics carry over to the ETF, the firm said.
HIYI is available on all major custodians and most major platforms. It will have an expense ratio fee of 0.40%, according to the firm.
The ETF is the latest in a series of ETFs the firm has launched since September when it made its initial endeavor into the space. Archard was brought in last year to spearhead the movement and the Nashville, Tenn.-based firm has already amassed more than half a billion dollars in assets with its five ETFs, Archard said.
Most of those assets are in the AB Ultra Short Income ETF (YEAR) and the AB Tax-Aware Short Duration Municipal ETF (TAFI), both of which launched in September. It added to its active ETF menu in February with the launches of the AB US Low Volatility Equity ETF (LOWV), the AB US High Dividend ETF (HIDV), and the AB Disruptors ETF (FWD).
“We’re trying to bring out products that are either going to be extensions of strategies that we have that might not have been as accessible to a broad market use or look at ways that we can complement the way we know investors are using other product sets so they can combine passive with our active to get effect for their end client,” Archard said.
The focus for the firm on ETFs has come as the products themselves have been enjoying a surge in popularity. A number of factors have led to their greater acceptance from the public including the ETF Rule, which the SEC passed in 2019. It made it easier for firms to bring ETFs to market without going through several exemptive hoops.
“That lowered the bar relative to what it would take to get ETFs into the marketplace, not lower the bar from a quality perspective but just from cost and time,” Archard said. “Waiting to go through the exemptive relief filing process was a bit onerous so now you had a consistent set of rules that also meant you could run your funds the way everyone else does.”
Investors and advisors have also become more acclimated to ETFs and active ETFs, and how to use them with their portfolio, he said. Entering the ETF market has also become easier because more ETF service providers have entered the market, he said.
AB will roll out additional products this fall, including a fixed-income and equity product, although the firm is not looking to convert any more of its existing mutual funds into ETFs, according to Archard.
“While we have no additional conversions filed, we will continue to assess what is the best vehicle for existing shareholders, and for the growth prospects of the strategy,” he said. “We do have plans to expand both our fixed income and equity offerings over the course of the coming year with new launches.”