First Look ETF: Laddered Bonds and Defensive Investing

Hello everyone.

You are watching the November episode of First Look ETF.

I'm Stephanie Stanton with ETF Guide.

It is great to see you again.

Today we have a stacked guest lineup.

Coming up, we're going to examine a new suite of fixed income ETFs from Northern Trust Asset Management that offer unique income solutions.

We will also explore two recently launched ETFs, one from Ori Capital Management and another from Equitable Shares, each offering two different but novel approaches to investing in stocks.

But first, before we go any further, we want to welcome Bal Little with the New York Stock Exchange.

Bal, it's great to see you.

Thank you for joining us. >> Thank you so much for having me, Stephanie.

I'm excited to be here. >> We want to begin, of course, with the latest update on ETF launch activity.

How are things looking? >> Yeah, look, 2025 has officially been a record-breaking year for ETF innovation.

We've officially crossed 900 ETFs year to date and setting a new annual record in the United States uh alone. 134 total new ETF launches in October.

One thing I want to point out is what's driving all the insane adoption.

Well, it starts with a surge in active strategies now accounting for nearly 85% of all new products that have been launched.

This pace of innovation shows how ETF issuers are responding to investor demand for precision, flexibility, and tax efficiency.

And look, it's shaping the way the product landscape is evolving in real time.

We have seen strong listing strong listings in fixed income ETF strategies particularly in the municipal bond space as well as in high yield and ultrashort duration driven by rate volatility and yield demand.

Additionally, technology and digital asset ETFs targeting AI, blockchain and crypto names continue to surge while leveraged single stock ETFs continue to cater to tactical traders.

The point is this investor demand is really driving the activity right now.

The SEC's recent rule changes have expanded investor access and choice, enabling mutual funds to offer an ETF share class.

How much of a gamecher has this been for both investors and the ETF industry? >> Yeah, no, look, great question.

The truth is we are still we still don't know the full impact of what's going to happen over time.

Sure, the SEC recent their recent decision to grant ETF share class relief marks a seismic shift in the industry, but this isn't just about a regulatory housekeeping.

What we're seeing is modernization that could reshape the fund structure for decades to come and really accelerate uh ETF migration from mutual funds to ETFs.

For advisers and investors, here's what I would be paying attention to.

Adding ETF share classes to an already existing mutual fund means clients can access intraday trading, improve tax efficiency, and reduce fees all while preserving the fund's track record.

That's good for the asset manager as well.

But the complexity remains particularly when it comes to the platform readiness.

When you start thinking about infrastructure support from market makers, custodians, and service providers, as the rule change continues to take traction, I think one thing it's going to be telling is how much time it's going to take to for this to evolve. >> As always, we have a great guest lineup.

Um, Bal, what are you looking forward to most on today's show? >> Yeah, look, I'm really excited about today's lineup.

We have an incredible uh stack of managers.

It's a collection of highquality asset managers and I'm excited for their discussion.

So look, let's start with a well-known name in asset management, Northern Trust, who just launched a new suite of lattered ETFs which are engineered to deliver predictable cash flows with reduced risk over time.

Up next, we have Acra Capital, which is known for their discipline equity investing approach, who recently converted one of the largest mutual funds uh over $10 billion into an ETF.

So excited to see what they have to say.

And then to round out today's lineup, we have Equitable Shares, which is actually managed by Tamo Advisors, and it's an investment firm that specializes in defense strategies, but most importantly, they are designed for a straightforward hedged equity solution.

What I'm excited about today is this list of managers are all high quality, and I believe you will have a very great show for today. >> Bal Little from the New York Stock Exchange, thank you so much for joining us.

It is great to see you and we will see you soon. >> Thank you so much for having me Stephanie.

I'm excited to be here. >> And just a quick reminder to watch First Look ETF on Apple TV, Amazon Fire TV, and Roku.

We also simoc cast First Look ETF on iTunes and Spotify, so don't miss it.

Fixed income markets are in flux and a steeper yield curve is emerging.

So what that means is that investors are demanding higher compensation for long-term risk amid fiscal uncertainty.

Well, a new lineup of fixed income ETFs from Northern Trust aims to help investors navigate these uncertainties.

Let's welcome Chris Huer, director of ETF and fund strategies with Northern Trust Asset Management.

Chris, it's great to see you. >> Thanks, Stephanie, for having me.

It's great to see you, too. >> So, Northern Trust Asset Management unveiled 11 new fixed income ETFs.

So, congratulations.

Which segments of the bond market are these recently launched ETFs targeting?

We're excited to bring these ETFs to the market.

There's 11 ETFs, but they're really based in three different suites.

So, the first three are really expanding our capabilities with municipal bonds.

Uh, Northern Trust has been working with municipal bonds for 30 years.

We have 17 investment professionals with an average of 18 years experience in the MUN bond space, but these are our first three that are passively tracking uh in the ETF vehicle, the municipal bond space.

So there's three of them uh that cover different uh maturity segments of the municipal bond market.

So there's uh the the short duration or short maturity which is T AXS taxes that covers the 1 to5 space.

There's an intermediate uh maturity space T AI so taxi and then finally there's a full uh municipal bond curve one that's T A XT that covers you know the full maturity of of the municipal bond curve.

So really this is expanding our capabilities for our clients uh giving them new tools to use in their portfolio.

Uh and that's the first three and then the other eight are really split between two different product segments uh and two different sets of distributing ladder ETFs.

And this is a really a new concept that's out there in the market today. uh very similar to a traditional ladder where you're owning multiple rungs uh or multiple years of bonds that you're stringing together into a ladder.

And so what that does is that helps you from an interest rate sensitivity standpoint because you're owning those bonds till they mature at par value.

And so you don't have to really worry as much about interest rate exposure.

And typically way a traditional bond ladder works is when those bonds mature, you go out and invest in the next rung that you would.

So if it was a 1 to 10ear ladder, you would be taking that first year and buying the 11th year.

So it's always a 10-year bond ladder.

What distributing ladders do is and when those bonds mature at the end of the year, we're going to be returning capital back to investors.

So it's offers all the benefits of a traditional ladder but with an additional benefit of really becoming a really powerful cash flow management and financial planning tool for investors to use in their portfolio.

So really cool.

There's four uh in each set.

So four four of those will cover inflation linked bonds.

So using tip securities and then the other four will also be MUN securities offering taxexempt income on top of that.

And each set will have bonds covering 5, 10, 20, and 30 years.

So, you're talking about being able to buy a 30-year MUN bond ladder with one single ticker purchase. >> What are the challenges facing investors and how does Northern Trust fixed income ETF suite help them? >> I think there's a couple of challenges out there.

One is um that we're you know in an environment where rates are falling or rates are predicted to fall even further as we we go into the next year.

And you know when you have uh when you're using your assets to fund goals whether that's retirement or you know charitable spending or for your taxes.

Uh if you think about it, we're we've all been conditioned that the risk-free rate is either cash or short duration treasuries.

Well, if rates are falling, then you that using those bonds and using that income to uh to cover your expenses is at risk and it really causes liquidity event.

So these distributing ladders are very helpful from that standpoint to help investors address that way.

Additionally, other things are inflation and taxes.

Two other areas that are challenging for fixed income particularly because remember, you know, in bonds, you don't really have a protection for inflation unless you're buying TIPS.

And same thing from a tax standpoint, unlike dividends where uh they're they might be more advantageously taxed.

Here, it's going to be ordinary income. using MUN or TIP securities are two ways to to help investors on their fixed income portfolios adjust for that.

So we could do that with these distributing ladders on the tax exempt side and the inflation protected side.

And then the other thing is you know right now investors are dealing with a pretty flat treasury yield curve.

So you're really if you're going out in duration you're not really getting as much bang for your buck.

If you look at the municipal yield curve today it's much steeper.

So if you're going further out on that yield curve and using a product like TXT, it could really be a compelling tool for investors to look at and and and get more more more yield in the current environment uh with the curve in the mini space being more attractive than treasuries. >> And what type of investor or advisor might be a good potential fit for Northern Trust tax exempt or inflation linked bond ETFs?

You know, I I think there's many types of investors that that could use these.

You know, we believe that assets serve a purpose.

And so, from our perspective, you know, anybody from retirees, particularly in this environment where we've moved away from pensions and DB plans to more DC plans.

So, a lot of times you get to retirement with this nest egg and you're not sure how to what's next.

And so a distributing ladder could have advisors or investors look at that and say, "All right, for the next 10, 20, 30 years, I could put together a predictable cash flow stream to cover my expenses and then look at the rest of my portfolio and how I could do that." So, we've seen people use it for that.

Um, we've had conversations with clients around using it for for college uh spending.

So, maybe you've you've saved money for college and you're looking to deploy that over the next four or five years.

You could use that with a five-year ladder product to help on that side.

An interesting thing uh one adviser talk we've talked to has spoken to us about is having clients that want to retire early, retire at 62 and be in a position where they want to touch their social security but they know they're going to be penalized but they want to retire early.

What that client or that investor talked about was, hey, we could use a five-year ladder to get them from 62 to 67 and then they're getting the full retirement.

If you and you you earned the full, you know, the the the full social security benefit, that's over $1,100 every month better once you get to that retirement if you're taking it at 67 versus 62.

So any tool that can help investors bridge that gap is really helpful and these tools could be used for that purpose as well. >> Chris, thank you so much for joining us.

We appreciate your time.

Keep up the good work. >> Thanks.

My pleasure. >> Some investors can become so fixed on diversification that they end up with a mixed bag of overdiversified holdings that don't contribute any meaningful value.

But what if there was a fund with a focused portfolio of best ideas?

Well, that is the strategy of a new ETF from Ory Capital Management.

And here to tell us more about that is John Nef, CEO, CIO of Ori Capital Management.

Hi, John.

It's great to see you. >> Thank you so much for having me. >> So, before we dive into your firm's latest ETF, can you familiarize us with Ary Capital Management and your firm's investment philosophy and unique approach? >> Absolutely.

So, Ary Capital Management was founded by Chuck Ori in 1989 and we have adhered to a consistent investment approach from day one.

We call that approach our three-legged stool and the framework helps us identify the businesses in which we want to concentrate our investors capital.

And the first leg of the stool is the nature and the quality of the business.

And specifically, we're looking for a durable competitive advantage that we can understand that supports a dominant business franchise over the foreseeable future.

And that competitive advantage is always understood qualitatively.

It can't be screened for.

It takes time to understand and to monitor this.

The second leg of the stool is the quality of the people running the business and the culture of the business.

And here again, understanding takes time.

So for example, we read and we vote our own proxies to understand the management incentives and the cultures that they reflect.

And the last leg of the stool is reinvestment.

Specifically, what's the opportunity and acumen for reinvesting the company's free cash flow so as to compound business value for shareholders.

It's not an overexaggeration to say that a company's return on reinvestment will equal our return as shareholders.

So we pay a lot of attention to how well management teams allocate capital across organic reinvestment, acquisitions, share repurchases, etc.

And we need access to the decision makers of the company to understand how they think about and prioritize reinvestment.

So it dovetales with the people leg of the stool.

Yeah, it makes a lot of sense.

So, the OAR focus ETF and the ticker is AKRE.

It was just added to your fund lineup.

So, congratulations.

Can you tell us more about the fund strategy and holdings? >> Yes.

So, when we find the rare business that that really meets our criteria across all three legs of the stool, again, business, people, reinvestment, the last objective for us is to pay a reasonable price for the shares.

And that may mean waiting for years.

But if we adhere to the discipline, the result should be a concentrated portfolio comprised of exceptional businesses that have been purchased well.

And that continues to be the case.

We have 16 names in the portfolio today.

The top six represent about 60% of the portfolio.

Many of the holdings dominate important global ecosystems and choke points in the economy and they operate as a part of a natural igopoly.

So Mastercard and Visa for example, the two dominant global global open payment networks.

Uh Moody's for example is another is another name that we've held for many many years.

One of two dominant global debt ratings franchises.

Copart, the leading claims cost mitigation business for autoinsurers.

We own businesses also that have dominant proprietary data positions that will become even more valuable in an AI world such as CoStar Group and CCC Intelligent Solutions.

And we own great capital allocators.

Back to the importance of reinvestment.

We want to own great capital allocators and we own those in private capital leaders like KKR and Brookfield as well as serial acquirers of vertical market software businesses that include Constellation Software, Topicus and Roper.

So different types of businesses but they all exemplify the three-legged stool criteria. >> So then how do you see advisers and investors potentially using OAR inside of a diversified portfolio?

I think diversified is actually the key uh the key word here.

You can use our ETF for real diversification because it looks nothing like any index.

Our active share year in year out is typically 98 to 99%.

We run a concentrated portfolio.

True, but the indexes are getting increasingly concentrated due to the outsiz performance of the largest stocks.

So the S&P currently derives 35% of its value from just seven names.

And while our fund is categorized as large cap, what we own is small compared to the growing number of trillion dollar market caps that are dominating the index.

So the median market cap in our ETF today is 77 billion.

So we own exceptional businesses with long runways to uh relative to their current size to generate huge compounded annual returns and we look nothing like the typical large cap portfolio today. >> John, thank you so much for sharing more about your company and your new ETF.

Congratulations and thank you for joining us and >> thank you for having me. >> Staying disciplined can be a challenge especially during market extremes.

Well, a newly launched fund on the NYC from Equitable Shares aims to help investors with a disciplined approach to equity exposure with built-in downside protection.

So, how does the fund work and what types of investors might it appeal to?

Here to tell us more is Ron Santella, CEO and founder of Equitable Shares.

Ron, it is great to see you. >> Sure.

Nice to meet you, Stephanie.

Thanks for having me today.

So before we discuss your firm's latest ETF, can you tell us more about the firm's unique investment approach? >> Yes, you know, you mentioned discipline and I think that's one of our core principles.

I would say we have three core principles in our portfolio management approach.

One is discipline.

We take a rules-based approach to managing our portfolio.

It eliminates surprises and there's certain predict development to our portfolio management.

Uh we also believe strongly in having all weather solutions which is was a way of saying we're market agnostic.

So we want our products to perform well in up markets, flat markets and down markets and they do.

And then the last thing is we're in the stay rich business.

So our solutions and our fund in particular are low volatility risk mitigation on the way down and again hence we want people to uh preserve their capital.

So that that's one of our goals. >> And the recently launched equitable shares hedged equity ETF and your ticker there is HEDG.

It employs a novel investment strategy that aims for upside growth while aiming to neutralize market risk.

So what does a fund own and how does it work? >> So as a symbol says in the ticker HDG, it's a hedge product.

Um we it's very straightforward.

We're a beta play on the market.

So, we're long two securities, SPY IV, two ETFs that track the S&P 500.

We hedge them in a combination of covered calls and a long put spread.

So, we sell 90-day call options against the underlying positions.

We roll those positions systematically.

We then buy an out- of-the- money put spread on about a third of the portfolio.

You know, the net result, Stephanie, is that you end up with exposure to the S&P 500 with about 40% of the volatility, uh, producing income of about the after tax yield to 10 year.

We've corded distributions and we do put an emphasis on tax efficiency on our distributions. >> And how do you see advisers and investors potentially using hedge inside a diversified investment portfolio? >> So, we currently have close to 200 investors, mostly advisers.

That'll probably change as the ETF gets out there.

And I would say it falls into three buckets from the feedback we get from the adviserss.

The the largest bucket are advisers who see this as a complement to their core equity allocation.

So it's for their moderate to low risk clients who still want exposure to the S&P but want to dial back the volatility.

So we're a perfect solution for that. uh at the other end of the spectrum, we're attracting more and more fixed income investors and we are not a fixed income product, but I think people look at us and they say our returns have been twice the Barkcley A over the last three years with less volatility than the Barkley A.

So we're finding that about a third of our new money has come from fixed income investors.

And then there's that group in the middle, the liquid alts, the hybrid investors.

And I think that that is also growing.

They're saying, "Look, you've annualized it over 12% for 3 years.

Your volatility has been lower than fixed income, and you're very liquid.

We can get in or out of your security intraday if we want." So, we're seeing people that were invested in hedge funds or alternatives who actually like this product because of its characteristics. >> All right, we're going to end it there, Ron.

Thank you so much for joining us.

It is great to have you here on First Look ETF. >> Appreciate you having me.

Thank you, Stephanie. >> Well, that does it for today's episode of First Look ETF.

If you like the show, please tell us in the comment section below and by hitting the like button.

Want to give a big thanks to all of our guests along with Bal Little from the New York Stock Exchange.

Be sure to check out ETF central.com to learn more.

I'm Stephanie Stanton with ETF guide.

Thank you so much for watching.

We will see you next time. >>