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Rating:Two Fintechs Team Up to Launch, White Label, and Customize ETFs Not Rated 5.0 Email Routing List Email & Route  Print Print
Thursday, August 12, 2021

Two Fintechs Team Up to Launch, White Label, and Customize ETFs

Reported by Neil Anderson, Managing Editor

A pair of fintech infrastructure firms are teaming up to enter the fixed income ETF business ... and to power ETFs for their customers, too.

Raakhee Miller
DriveWealth, LLC
Chief Product Officer
On July 27, Bob Cortright, founder and CEO of DriveWealth, LLC, and Adam Green, CEO of YieldX, unveiled the DriveWealth Power Saver ETF (ticker EERN on the NYSE Arca) and the DriveWealth Steady Saver ETF (ticker STBL). Both new ETFs are a series of the RBB Fund, with RBB ally Red Gate Advisers, LLC as the funds' investment advisor, and with both YieldX and Vident Investment Advisory, LLC as subadvisors.

Green describes Miami-based YieldX (which launched last year) as a B2B platform that is "the first digital end-to-end infrastructure for income investing." Both ETFs use YieldX's InPaas "portfolio construction workflow" to target specific net yields (eight percent for EERN and three percent for STBL), with the idea being that retail investors use the ETFs as an alternative to low-yielding cash accounts (like money market funds).

Meanwhile, nine-year-old, Chatham, New Jersey-based DriveWealth, which offers brokerage and custody services, creates infrastructure to support digital banks, roboadvisors, and other fintechs (90+ firms and counting, in 150+ countries), "to democratize finance for the retail investor," explains Raakhee Miller, DriveWealth's chief product officer. And many of the retail investors supported by DriveWealth's clients, she says, are frustrated with "living in this sort of low yield or no yield environment." And that's where the DriveWealth ETFs come in: as a yield-generating solution for DriveWealth's institutional customers to offer to their retail investor customers.

"For too long, bank savings accounts and CDs have yielded next to nothing, and in many parts of the world, savers are effectively forced to pay banks to keep their money," Cortright states. "Our partners have been asking for thoughtful solutions to this problem — their investors want access to investments that provide income, diversification and an attractive return on capital."

"ETFs make it so easy and transparent for the average retail investor to get into," Miller tells MFWire. "It's the retail revolution, and it's global, and everybody's interested in the U.S. markets."

"We want to offer a logical way for people to get higher yields while still limiting their risk exposure," Green tells MFWire.

Arnie Reichman, chairman of the RBB Fund, describes the launch as an illustration of "RBB's continued product innovation in the Series Trust space."

DriveWealth will also offer its customers the ability to white-label the two ETFs while keeping the parts under the hood the same. Miller describes this option "a very interesting brand engagement tool" for their clients.

"We kind of see this molding to fit our partners," Miller says.

"These brands that DriveWealth and YieldX support have gone out and built these massive customer bases," Green says. "The thinking behind white-labeling was really to be able to support the growth of our partners."

And for those DriveWealth clients that want other options besides the three-percent and eight-percent yields offered by the initial two DriveWealth ETFs, DriveWealth and YieldX will customize the offering in the form of branded ETFs. (YieldX's InPass solution allows users to target a yield, risk level, or dollar distribution: in the case of yield, they can dial it from one percent up to 10.5 percent, Green says. They even put their own VC funding capital into an InPaas-powered portfolio with a three-percent target yield, like STBL.)

"We believe that the three-percent and eight-percent target yields are great starting points," Green says.

Both of the new DriveWealth ETFs are PMed by the same quartet: Tom Bradley, managing director and head of fixed income at YieldX Advisers, LLC; Ryan Dofflemeyer, senior portfolio manager at Vident; Stewart Russell, chief investment officer of YieldX Advisers; and Rafael Zayas, senior vice president and head of portfolio management and trading at Vident. EERN's expense ratio is 149 basis points (thanks in part to a 48-bps fee waiver by Red Gate that will last at least until December 31, 20220, while STBL's expense ratio is 66 bps (including a 20-bps fee waiver).

Other service providers for the new funds include: Faegre Drinker Biddle & Reath LLP as legal counsel; Pricewaterhouse Coopers LLP as the independent accounting firm; U.S. Bank as administrator, custodian, securities lending agent, and transfer agent; and Vigilant as distributor.

Watch for the DriveWealth team to expand to support the new ETF effort as it grows.

"We have added some folks to our marketing team," Miller says. "We'll definitely looking to add more and more people focused solely on the ETF products."

Miller says that the YieldX ETF partnership has been "a really great and very fruitful journey" for DriveWealth. Green, in turn, describes DriveWealth as "a perfect partner" to help YieldX bring "sophisticated asset management strategies in this ETF vehicle."

Looking ahead, Miller confirms that the DriveWealth team is interesting in launching more offerings with YieldX as the team there "is evolving and creating more products." Green adds that the YieldX team has a "very strong desire" to do more in the ETF space. And both Green and Miller put their outlook in the context of their firms' focus on being responsive to customer and retail investor feedback, in real time.

"We can be responsive to those trends," Greens says.

"Our entire platform is API-based," Miller says. "Speed to market and malleability is of the utmost importance." 

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