Our coverage in recent days on High Yield Corporate Bond ETFs has spawned a number of inquiries among both investment managers and the ETF media, driven by not only interest in this sub-sector but across Fixed Income ETFs in general.
Today we zero in on a rather new concept in Fixed Income ETF investing, that of “Negative Duration.” Just about 8 months ago in December of 2013 Wisdom Tree launched two funds based on the concept in AGND (WisdomTree Barclays U.S. Aggregate Bond Negative Duration, Expense Ratio 0.28%) and HYND (WisdomTree BofA Merrill Lynch High Yield Bond Negative Duration, Expense Ratio 0.48%).
Rooted in the familiar theme of a potential rising interest rate environment that investors may be confronted with, literature about AGND states that the goal of the product is to “help investors preserve the coverage and breadth of their current investments while reducing their overall exposure to interest rate risk.”
The Barclays U.S. Aggregate Bond Index, Negative Five Duration “combines long positions in the Barclays U.S. Aggregate Bond Index with short positions in U.S. Treasury Bonds to provide a duration exposure of -5 years. Market values of long and short positions are rebalanced at month-end.”
Investors are no doubt well acclimated with the Barclays U.S. Aggregate Bond Index and familiar tracking ETFs such as AGG (iShares Core Total U.S. Bond Market, Expense Ratio 0.08%) which has more than $17 billion in assets under management currently, and the development of tools such as AGND and HYND (which is structured in a similar manner only concerning the High Yield Corporate Bond realm as opposed to Total Bond
Market) is encouraging to see since it can remove some of the guesswork involved from a portfolio management standpoint in dealing with interest rate risk.
Both AGND and HYND remain rather small however and largely undiscovered by ETF model managers it seems, with $4.7 million and $2.3 million in assets under management and 4,700 and 9,100 shares traded daily respectively, but trading volume in both products has notably picked up in the past two weeks.