With greater risks and lower income potential, traditional fixed income investors will need to accept either lower returns or greater volatility. In a worst-case scenario, they could experience both.
Unconstrained approaches are designed to address this challenge. Unconstrained strategies focused on delivering bond-like volatility can be used as either a complement or a replacement for core-based fixed income strategies. Given the increased flexibility for positioning and managing interest rate risk, unconstrained exchange-traded funds (ETFs) are, in our view, one potential solution to the uncertain environment.
Partnering with Western Asset Management Company to Offer an Unconstrained ETF
WisdomTree believes unconstrained fixed income strategies can also serve as core bond allocations. While there is a plethora of traditional fixed income-oriented benchmark ETFs, WisdomTree saw limited ETF solutions and a growing need.
To marry the benefits of the ETF structure—which includes full transparency into holdings of the unconstrained investment manager and the tax efficiency of the ETF structure—WisdomTree partnered with one of the leading fixed income managers in the world to offer an unconstrained ETF.
On June 11, WisdomTree launched the WisdomTree Western Asset Unconstrained Bond Fund (UBND). In an upcoming blog post, we will go into more detail on Western Asset’s approach to unconstrained investing and how it will be implemented in UBND. Quite simply, WisdomTree believes UBND can serve as a core fixed income allocation given Western Asset’s focus on delivering bond-like volatility with its unconstrained yet very disciplined focus on fixed income.
1Source: Barclays, as of 3/31/15.
Important Risks Related to this Article
UBND is new and has limited operating history.
There are risks associated with investing, including possible loss of principal. Unlike typical exchange-traded funds, there is no index that the Fund attempts to track or replicate. Thus, the ability of the Fund to achieve its objective will depend on the effectiveness of the portfolio manager. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. In addition, when interest rates fall, income may decline. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. High-yield or “junk” bonds have lower credit ratings and involve a greater risk to principal.