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Income ETF story hits its stride in current markets

It’s all about producing income for Colorado-based Advisors Asset Management (AAM). Lance McGray, Managing Director, Head of ETF Product, Advisors Asset Management explains that the firm has been a dynamic player in the asset management space since 1979.

“For AAM, the majority of our products are income focused,” McGray says. “Currently, our entire ETF line up is geared around helping advisers meet their clients’ income desires or potential for capital appreciation.”

ETFs have arrived relatively recently in this firm’s history. At the end of last year, the brokerage and advised business at AAM, the business that it started in 1979, represented roughly USD45.7 billion in assets, with assets under supervision representing USD7.6 billion in UIT assets. The firm has USD34.1 billion in assets under administration that represents the non-proprietary assets for which AAM provides various levels of service, but not management, while the firm’s USD4.0 billion in assets under management represents AAM’s proprietary separately managed account, mutual fund and ETF assets.

While the fixed income broker/dealer business on which the firm was founded remains an important part of what the firm does, the early 1990s saw the firm wanting to diversify and get into more traditional asset management areas and that was when it started to offer unit investment trusts, a strategy in which the firm is now the second largest sponsor in the US, behind First Trust.

AAM was then able to leverage off the distribution network success in that strategy brought and the firm moved to offering separately managed accounts, mutual funds (now grown to over USD3 billion in assets) and finally, in 2017, when McGray arrived at the firm, the launch into ETFs.

“When we talk about product development, it’s essential for ETF issuers to focus on their strengths,” McGray says, which in AAM’s case is income production. However, he wryly notes that this has been a hard sell over the recent years.

“It was certainly challenging in a low interest rate and growth market, but times have changed. Investors are now worried about rising rates, inflation risks and stretched equity valuations. Currently,   our entire ETF product suite is designed to help  is investors address these concerns, and we believe we are positioned well heading into 2022,” he says.

Assets in the ETF business have reflected that new interest, standing at USD240 million now, having started 2021 with USD40 million.

Distribution spreads across niche, boutique and institutional asset managers. “AAM often partners with top quality institutional asset managers to offer a diverse range of solutions.” McGray says. “Our ETF business is slightly different in that it paved the way for us to offer low cost, tax-efficient, and innovative rules-based solutions.”

The first four ETFs were rules-based passive strategies with high dividends and then they launched a low duration preferred ETF, the AAM Low Duration Preferred & Income Securities ETF. “That market is USD40 billion in US-listed ETFs,” McGray says. “We launched the only low duration preferred ETF designed to achieve the benefits of preferred stocks but also potentially mitigate the impact of rising rates in the future. This is a hot topic heading into 2022 and that product is up 1200 percent in assets over last year.”

McGray believes that 2021 will go down as the year that active ETFs arrived. “Over 70 per cent of the ETFs launched in 2021 were active strategies and this is a trend that I think will continue in 2022.” he says. 

Less than a year ago, the firm launched its first active ETF, the AAM Bahl & Gaynor Small/Mid Cap Income Growth ETF, designed to be a small/mid cap income growth ETF which happens to be fully transparent.

“When we talk about product development in this very competitive landscape, it’s essential for ETF issuers to focus on their strengths,” McGray says, and for AAM those are products designed to produce income.

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