Angel Oak's active structured credit ETF takes off

Angel Oak Capital Advisor’s securitized credit-focused active ETF platform, launched in October 2022, has now over US$1bn in assets and is on course to hit US$2bn soon, possibly before the end of 2024, Ward Bortz, ETF portfolio manager, told SCI.

A 2019 change in regulations allowed ETFs to take positions in securitized credit and Angel Oak Capital Advisors, based in Atlanta, was one of the first movers to take advantage of the new conditions.

It calculated that active ETF buyers would want to take exposure to the securitized credit, and this has been emphatically endorsed. It originally targeted just US$200m in its first two years but has exceeded that figure by more than fivefold in less than 22 months. Moreover, growth is accelerating.

“I thought platforms that utilize ETFs will want active exposure to structured credit. I was more right than I thought I’d be,” says Bortz.

Until the change in rules only mutual funds could invest in structured credit, and there are many available with a structured credit component. These frequently outperform funds devoted to non-securitized products.

There are four strategies that fall under the ETF umbrella. The first is devoted to short duration, high credit investments such as AAA-rated and AA-rated ABS assets such as auto loans, consumer loans and credit cards.  

About 20% of the portfolio is in Treasuries and agencies and the remainder is in credit products. “About 65%-80% of credit is securitized, so it’s very overweight securitized credit. The mandate is wide but we tend to allocate to ABS, mortgages, some CLOs,” says Clayton Triick, head of portfolio management of public strategies.

Over 40% of total investment in ETFs is invested in this bucket, and it will return about 6.5% this year.

Until Angel Oak offered structured credit through an active ETF platform, only mutual funds had had access to securitized credit in bundled format, but these tend to be the preserve of larger, more sophisticated institutional buyers. The firm believes it is forming a bridge to greater and more widespread ownership of structured credit exposure.

These clients comprise money managers, insurance companies, family offices, larger IRAs and some banks and are based all over the country.

“People did really want fixed income solutions that you could only do in mutual funds. They were not going to buy a mutual fund, for whatever reason, and they said ‘You guys are the ones that introduced the solution that has the cool stuff that I want,’” says Bortz.

It also offers a longer duration, but high yield strategy, an income focused solution with some high yield exposure and some investment grade exposure and a high yield solution.

Angel Oak has US$17bn in assets under management, and is considered a leading structured credit boutique investor. It was this expertise that led Bortz, previously of Invesco, to approach it with the idea of an actively managed ETF devoted to securitized credit. The results have borne out the wisdom of this idea.

Simon Boughey