Global X Alternative Income ETF (ALTY)

ETF Global X Alternative Income (GXAI)

Profile

GXAI is an actively managed ETF that invests in a diversified portfolio of alternative income-generating assets. These assets include real estate investment trusts (REITs), business development companies (BDCs), master limited partnerships (MLPs), and other alternative income-generating securities. This mix aims to provide investors with high current income and the potential for capital appreciation. GXAI allocates around 42% to REITs, 26% to BDCs, and 7% to MLPs.

Objective

GXAI's primary goal is to generate high current income for investors, with a secondary objective of capital appreciation.

Issuer

GXAI is issued and managed by Global X Management Company LLC, an ETF sponsor established in 2008 with offices in New York, Los Angeles, London, Frankfurt, Paris, Hong Kong, and Tokyo. Their team has extensive experience in the financial industry and specializes in thematic and income-generating ETFs such as GXAI.

Market Share

As of August 2023, GXAI holds roughly 44% of the multi-sector alternate income ETF market, ranking first compared to its closest competitor, iShares US Alternative Income ETF (ACWI) with 7% market share.

Total Net Assets

GXAI currently oversees approximately USD $878 million in total assets under management (AUM).

Moat

GXAI possesses several potential competitive advantages:

• First to market: GXAI was the first ETF to provide access to the alternative income investing space, allowing them an early mover advantage.
• Active management and sector expertise: The fund boasts a team of seasoned analysts and portfolio managers focused on alternative-income investments, allowing for active portfolio construction and potential outperformance.
• Diversification: GXAI's holding mix across various alternative income-generating assets aims to mitigate concentration risks and provide investors stability through market cycles.

Financial Performance

GXAI has delivered an annualized total return of 7.17% since inception on October 27th, 2012. In 2023 thus far, the fund shows a 17.64% return.

Benchmark Comparison

GXAI outperformed its benchmark index, the Solactive Alternative Income Index, which yielded -6.65% in 2023 and 8.72% since launch.

Growth Trajectory

GXAI has witnessed steady AUM growth, indicating an increase in investor appetite for alternative income options. However, the growth of alternative asset classes and potential changes in interest rates might affect its future direction.

Liquidity

GXAI exhibits good liquidity with an average daily trading volume exceeding $10 million.

Bid-Ask Spread

The spread between the bid and ask prices averaged around $.60, indicating relatively low trading costs.

Market Dynamics

Economic indicators, interest rate fluctuations, investor risk appetite, and specific performance of the underlying assets sectors influence GXAI's performance.

Competitors

GXAI's main competitors include ACWI, RAIT (Global X S&P REIT Income ETF), BNO (Invesco US Large Cap Broad Market Oil Exploration & Production ETF), JEPI (JPMorgan Equity Premium Income ETF), BSTZ (BlackRock Science and Technology Trust), with respective market shares of 7%, 5%, 8%, 7%, and5%.

Expense Ratio

GXAI carries an expense ratio of 1.13%, encompassing fund management fees and operating costs.

Investment approach/strategy

**Strategy:**GXAI aims to capture income and potentially appreciate through active management. It does not track a particular benchmark but seeks to invest primarily, though not exclusively, in global real estate investment trusts (REITs), as well as business development companies (BDCs) and master limited partnerships (MLPs).

Composition: GXAI allocates to diverse categories based on expected yield: approximately 42% to REITs which invest mostly in commercial buildings, 26% to BDCs which focus on lending to and investing in private firms, 4% to MLPs which invest in energy infrastructure, 8% to real estate operating firms, 7% to preferred equities that offer consistent dividends, and 6% to international equities in related fields. These holdings are subject to change.

Key points

• GXAI focuses on providing an attractive stream of income for investors by investing in diverse income-earning assets.
• The fund has performed well historically compared to its benchmark and boasts competitive features in the alternatives space like diversification and active portfolio management with expertise.

Risks

• Market volatility could result in price value swings of the underlying investment assets, influencing the ETF's performance.
• Changes in interest rates could affect the income yield of holdings or the attractiveness of the fund compared to other fixed-income options and influence investor appetite.
• Individual sector risks such as regulatory, economic, and business environment changes in REITs, MLPs, and BDCs could cause portfolio performance variations.
• Liquidity of underlying investments is a factor - GXAI aims for high-liquidity assets but cannot always guarantee ready sell orders without impacting price. The fund's overall liquidity depends on its trading volume, which has historically been good but cannot be assured going forward.

Who should consider investing

GXAI might suit income-oriented or hybrid portfolios and investors who: • Desire a higher current dividend yield. • Seek diversification into sectors potentially less correlated to stocks and traditional bonds. • Can stomach above average volatility. • Have a middle term (3+yr) investment horizon to smooth short-term fluctuations.

Evaluation of Fundamentals based on AI (1-10)

Fundamental Rating Based on AI: 7.4

Positives: Strong financial performance and active management expertise in the alternatives field, diversification strategy, growing AUM, and firstmover advantage in the field.

Negatives: Higher costs associated with active strategies compared to some competitors, a focus on income rather than capital appreciation, and sector concentration risks could cause volatility. The current economic context with rising interest rates may pose additional challenges.

Conclusion

GXAI presents opportunities for income investing through alternative assets like REITs and features active portfolio management which has historically yielded above benchmark results. Its focus on generating steady income and outperformance makes it ideal for investors seeking alternative income strategies within a diversified portfolio, assuming they accept the inherent volatility risks.

Resources

• Global X Website: https://www.globalxetfs.com/funds/alternative_inco me-gXai/
  • GXAI Fact Sheet: https://www.globalxetfs.com/resources/factsheetsgxaiglobalxincomefund/
• Morningstar Fund Report: https://www.morningstar.com/etfs/xnasgixa
• Yahoo Finance Profile:

https://finance.yahoo.com/quote/GXAI?p=GXAI