On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the ALPS/SMITH Core Plus Bond ETF (SMTH) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.

Chuck Jaffe: One fund on point for today. The expert to talk about it. Welcome to the ETF of the Week, where we examine trending, new, newsworthy, unique, and intriguing exchange traded funds, with the help of Todd Rosenbluth. He’s the head of research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools and the research you need to be a savvy and smart investor in exchange traded funds.

Todd Rosenbluth, great to chat with you again.

Todd Rosenbluth: I’m excited to be back, Chuck.

Chuck Jaffe: Your ETF of the Week is …

Todd Rosenbluth: The ALPS/SMITH Core Plus Bond ETF. The ticker is SMTH.

Chuck Jaffe: SMTH. The ALPS/SMITH Core Plus Bond ETF.

Now, this is a fairly new fund. If I’m not mistaken, it’s about six months old right now. Why a new fund, doing old things — core bond investing, now?

Todd Rosenbluth: Why we’re excited about this is we’ve seen growing demand for actively managed fixed income ETFs. Over 40% of the flows to fixed income thus far in 2024 have gone towardsactively managed ETFs. Now, this is a new ETF. You’re right, it came to market at the end of 2023. But it’s already gathered assets.

In fact, it has almost $700 million in assets under management. And the manager of this, Gibson Smith, runs a mutual fund that has a longer track record. It’s actually a four-star-rated mutual fund. But you get the benefits of an ETF through this active ETF.

Chuck Jaffe: With $700 million in AUM and a track record established from their traditional fund, you’re not worried about this fund being new? At the same time, I don’t need a new fund now. So is there something specific in what this fund is doing? Their take on the core bond space?

Todd Rosenbluth: What I do think is that more advisors are turning away from active mutual funds and turning toward active ETFs. So you get one of those managers that has a long track record, both currently working with ALPS, and then the history of the fixed income marketplace. What we’re finding is, given the interest rate environment, the Fed is on hold.

It’s not clear when they’re going to make their next move and whether or not it’s going to be up or down. We’re finding advisors are increasingly turning toward actively managed fixed income ETFs. You’ve got an expert in the field that’s at your disposal to support this. And what I like about this is this is a core-plus fund.

The plus part means it’s willing to — and does take on — credit risk. And it uses the whole field of the fixed income marketplace. So you’ll find some high yield bond exposure in this ETF. You’ll find corporates, you’ll find mortgages in agencies, as well as Treasuries. This is a best-ideas portfolio. And we’re really excited that the work that the ALPS team is doing to build out their ETF lineup with proven active managers — third-party ones that they can leverage the expertise from.

Chuck Jaffe: This is in the intermediate bond space. With the Fed not acting, is that the spot that you want right now? Because whatever is going to happen next and whatever the market does, it might whipsaw the long and the short ends of the curve? But intermediate is probably where things are going to be most comfortable?

Todd Rosenbluth: We’re finding advisors are increasingly comfortable taking on some interest rate risk. So they had been very short-term-oriented when the Fed had been hiking interest rates. The next move is likely to be a cut, probably one or two. Probably one, if I had to put my finger on just one answer to it in 2024. As such, you can get rewarded for taking on some interest rate risk, as this fund is doing.

But you get the benefits of a manager that is tilting based on the economic environment, based on where they’re finding the best bonds for the risk/reward opportunities. But we’re finding advisors are more comfortable in the intermediate term in 2024 and heading toward the middle of 2024, than they were when they were short-term-oriented six, nine months ago.

Chuck Jaffe: We’re talking about an intermediate bond fund. What’s the yield on this?

Todd Rosenbluth: Close to 5%, which is about what you’d get with short-term bonds. But you’d have to think , again, what’s the Fed’s next move, and whether the Fed’s next move is going to be a cut and not a hike. Then you’d want to take on a little bit more interest rate risk than you would without an ultra short bond ETF.

Now again, this is actively managed, so you’re paying a premium versus some of the index-based products, ito get exposure to the securities selection. That’s going to eat a little bit into the yield. But I mentioned that there’s a mutual fund version of the strategy. You’re getting institutional level pricing, and that’s a relatively low price, for an ETF compared to using the mutual fund, which has a few billion dollars in assets under management.

Mutual funds in general tend to have a higher fee than an ETF, even if it’s a actively managed ETF.

Chuck Jaffe: I very seldom play any sort of devil’s advocate in my role here on ETF of the Week, and I very seldom bring up other funds unless there’s a concrete reason. But in this case, since we’ve got a new fund in an old core space, I mean, if our audience members have bond funds, they probably have this space covered.

And the older space, the oldest way they could have covered this space in terms of an actively managed core intermediate bond fund, is the PIMCO Active Bond Exchange Traded Fund (BOND). which PIMCO started when Bill Gross was still there. And it has done reasonably well, but it has a long track record. and it has a slightly higher yield, and I believe a slightly lower expense ratio.

So I’m not suggesting that somebody should buy that one instead. But given that that’s the established one, that’s the 800-pound gorilla in this room, is new better somehow?

Todd Rosenbluth: I think investors want to make that decision themselves and conduct due diligence, understand the process, understand not only the performance record, but also how the fund is exposed and the people behind it. The PIMCO fund is a great fund. In fact, I think we’ve talked about other PIMCO funds as part of the ETF of the Week. I’d encourage investors to do their due diligence to compare these products beyond what I can do in a conversation with you right now.

But we do like this fund as well. And we think this should be among those actively managed core or core-plus bond ETFs under consideration.

Chuck Jaffe: And if somebody already has a core plus bond fund, something in the intermediate space, do you hurt yourself at all with two? Like with equity funds, we worry that you’re building a closet index fund.

With bond funds, do we have that same worry? Do we want to make it the two in the spaces is OK; three is too many? What’s your take on that?

Todd Rosenbluth: I think you probably want to pair SMTH with more of an index-based approach. Or perhaps swap it out with an index-based approach. So Vanguard or iShares or State Street have low cost, index-based products that are tracking the Bloomberg Barclays Aggregate Bond Index. This fund is going to offer a little bit higher yield by taking on a little bit more risk and get the benefits of active management and security selection.

So you probably want to have one actively managed core or core-plus bond strategy within your portfolio. We think SMTH is one that should be under consideration. And we’re going to talk more about it with Gibson Smith on May 16. People can register for the ALPS Symposium that’s taking place at ETFTrends.com.

Chuck Jaffe: There you go! And again, you’d be doing that to check out our ETF of the Week. It’s the ALPS/SMITH Core Plus Bond ETF. It’s Todd Rosenbluth’s pick as the ETF of the Week. Todd, great stuff. See you again next week.

Todd Rosenbluth: I’ll see you next week, Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, I’m Chuck Jaffe. Why don’t you check out my hour-long weekday podcast by going to your favorite podcast app or by going to MoneyLifeShow.com. And if you want to check out more information on exchange traded funds — new, old, established, all of them, index, active — go to VettaFi.com.

They’ve got every tool you can think of there to help you out. They’re on Twitter or X at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest, well he’s on Twitter as well at @ToddRosenbluth. We’re here with the ETF of the Week for you every Thursday. Subscribe so you don’t miss one. We’ll see you again next week.