WisdomTree: Managing Risk with Zero and Negative Duration Bond Portfolios

Real-World Applications

While the Barclays Aggregate could serve as a rough approximation of a hypothetical bond portfolio, many investors have extended beyond the index’s investment-grade universe to incorporate satellite positions in high-yield corporate bonds. In recent years, so-called “core plus” strategies have been employed successfully by money managers as a way to potentially add value to investors’ portfolios. Ultimately, these strategies seek to balance income and credit risk in order to generate total returns. By constructing these hypothetical portfolios using zero duration and negative duration tools as shown below, advisors can further refine their specific exposure not only to credit risk but to a specific level of interest rate risk as well.

Ultimately, we believe our latest suite of rising rate tools provide advisors with an opportunity to harness institutional asset management in an easily tradable ETF wrapper. Although rates in the United States have pulled back to start the year, we believe that they will likely rise as the snow melts, resulting in a potential headwind for traditional fixed income portfolios. In our view, the zero and negative duration strategies offer another tool for investors to better insulate their portfolios against a rising rate environment.