Which is the right solution for you? It really depends on what you are trying to achieve with your fixed income investment. Interest rate risk is a good diversifier against equity risk. If you are looking for your bond investment to provide ballast against your equity holdings then AGG may be more appropriate. If you look to your fixed income investment to provide some ballast, but also a bit more income potential, then INC may be more appropriate. As always, the key is that you now have another option to help you build the right portfolio for you.
Index or Active?
At this point some readers may be wondering how to categorize INC. Is it index? Is it active? We classify INC as smart beta. Much like the smart beta funds that have grown in popularity in equity markets, INC seeks to improve risk adjusted returns in a transparent, rules-based, low-cost way. My colleague Sara Shores discusses this concept on the Blog and will take a closer look at smart beta fixed income solutions in the coming weeks.
*Measures correlation between excess return and risk free return of the Barclay’s Aggregate U.S. Bond Index.