Exchange traded fund (ETF) and exchange traded product (ETP) sponsor and asset manager WisdomTree has launched the WisdomTree Barclays Yield Enhanced US Short-Term Aggregate Bond Fund (SHAG) on the BATS Exchange.
SHAG seeks to enhance yield by sourcing and re-weighting subcomponents within the short end of the US Aggregate (Agg) fixed income universe while maintaining similar risk characteristics and has a net expense ratio of 0.12 per cent.
In today’s current fixed income market environment, it can be challenging to maintain an appropriate balance between risk and return. While strong US economic growth may boost credit returns, it is also likely to lead to an increase in nominal interest rates. In addition, core fixed income benchmarks have experienced a dramatic shift from their historical composition over the last 20 years. For instance, because the government has outpaced corporations in debt issuance, market-capitalisation weighted indexes are heavily weighted toward US treasuries, which has resulted in historically low yields.
Through its relationship with Bloomberg Barclays as index provider, WisdomTree has developed an approach for SHAG that draws on the same universe as the Bloomberg Barclays US Aggregate Index, but focuses on ways to reduce interest rate risk while at the same time boosting yield. Using a disciplined, rules-based approach, SHAG overweights credit securities and underweights low-yielding treasuries.
“In a market environment where every basis point counts, overweighting treasuries might not be your first stop on the road to income,” says Kevin Flanagan, senior fixed income strategist at WisdomTree. “SHAG may serve as a powerful tool for investors seeking to navigate a potential rising rate environment.”
SHAG is WisdomTree’s second yield enhanced core fixed income strategy offering, following the launch of the WisdomTree Barclays Yield Enhanced US Aggregate Bond Fund (AGGY) in 2015.
Both strategies seek to increase income potential of core fixed income, while continuing to benefit from the risk mitigation and diversification of a multi-sector portfolio. These strategies can serve as a complement or replacement for existing core fixed income strategies and are ideal for income-oriented investors looking to pragmatically enhance yield or for those seeking opportunities across different parts of the yield curve.
“AGGY has delivered strong performance and we’ve seen great success with the Fund,” says Flanagan. “SHAG offers a solution for those investors who wish to shorten the duration of their fixed income portfolio while still focusing on income.”