Several of this year's top asset-gathering fixed income exchange traded funds are of the low or ultra-low duration varieties, indicating investors' preference for bonds that are less sensitive to rising interest rates.
A new ETF courtesy of IndexIQ, a unit of New York Life Investments Company, seizes upon that theme.
The IQ Short Duration Enhanced Core Bond U.S ETF (NYSE: SDAG) debuted Tuesday as the second new ETF introduced by IndexIQ over the past week. SDAG follows the IQ Short Duration Enhanced Core Bond U.S. Index, a benchmark comprised of other ETFs.
The fund is IndexIQ's first short duration ETF and its sixth fixed income ETF. IndexIQ launched its first bond ETF over two and a half years ago.
Why It's Important
The ETFs comprising SDAG's lineup include short-term Treasury funds, floating rate note products and short-term corporate bond ETFs. SDAG's largest holding is the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VSCH). The $20.6 billion VCSH, which has an average duration of 2.7 years, commands 34.49 percent of SDAG's weight.
The Schwab Short-Term U.S. Treasury ETF (NYSE: SCHO) is SDAG's second-largest holding at a weight of almost 28 percent. The $3.8 billion SCHO has an effective duration of 1.93 years.
"After several years of abnormally low rates, we once again find ourselves in a rising rate environment, a situation where investors often move to the shorter end of the yield curve,” said Index IQ Chief Investment Officer Salvatore Bruno in a statement. “ By combining short duration exposure with a momentum-driven approach, investors now have a powerful tool for gaining exposure to this key area of the fixed income market while also adding the potential for outperformance.”
SDAG's holdings are dynamically allocated based on 45- and 90-day momentum signals. The new ETF can include short-term high-yield debt. Two of SDAG's eight holdings are short-duration junk bond funds. Those ETFs combine for nearly a quarter of SDAG's weight.
SDAG charges 0.36 percent per year, or $36 on a $10,000 investment.
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