The Fed, Factor Investing and Fixed Income
This article was originally published on ETFTrends.com.
The U.S. Bloomberg Barclays Aggregate Bond Index has been a guiding beacon for many fixed-income investors over a three-decade long bull market, but the Federal Reserve’s tightening monetary policy could leave many exposed to greater risks.
On the upcoming webcast Thursday, Aug. 9, The Fed, Factor Investing and Fixed Income, Jordan Farris, Managing Director and Head of ETF Product Development at Nushares from Nuveen, and Robby Flink, Advisor for Infinity Financial Group, will delve into the bond market, consider the growing risks that many investors now face and look to a smart alternative that could help generate income while limiting potential downside risks.
For example, the NuShares Enhanced Yield 1-5 Year U.S. Aggregate Bond ETF (NUSA) and the NuShares Enhanced Yield U.S. Aggregate Bond ETF (NUAG) may help fixed-income investors take an alternative approach to bond investing.
The NuShares Enhanced Yield 1-5 Year U.S. Aggregate Bond ETF tries to reflect the performance of the BofA Merrill Lynch Enhanced Yield 1-5 Year US Broad Bond Index, which is represented by a modified version of the more widely observed BofA Merrill Lynch 1-5 Year US Broad Market Index.
The Enhanced Index does not weight components by market capitalization, instead opting to assign components into a variety of categories based upon asset class, sector, credit quality and maturity. The smart beta indexing methodology then utilizes a rules-based process to include higher weights to categories with higher yields while maintaining risk and credit quality at levels similar to the Base Index.
NUSA has a 2.81 year effective duration and a 2.88% 30-day SEC yield.
Similarly, NUAG seeks to offer enhanced yield relative to the broad, investment-grade fixed income market with comparable risk and credit quality by reflecting the BofA Merrill Lynch Enhanced Yield US Broad Bond Index (Enhanced Index), which is designed to broadly capture the U.S investment grade fixed income market.
Rather than weighting by capitalization, the Enhanced Index assigns component securities into a variety of categories based upon asset class, sector, credit quality, and maturity, and then uses a rules-based methodology to allocate higher weights to categories with the potential for higher yields without significantly increasing risk or decreasing credit quality.
NUAG has a 6.29 year effective duration and a 3.22% 30-day SEC yield.
Financial advisors who are interested in learning more about factor-based bond investments can register for the Thursday, August 9 webcast here.
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