A hypothetical fixed income ETF portfolio proposed by SSgA includes 15% exposure to high-quality U.S. government debt by way of the SPDR Barclays Intermediate Term Treasury ETF (NYSEArca: ITE) as well as a 15% weight to mortgage-backed securities with the SPDR Barclays Mortgage Backed Bond ETF (NYSEArca: MBG).
The hypothetical portfolio also heavily tilts toward credit with 70% of its weight devoted to corporate bond funds, including some high-yield fare.
The SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) is one member of the portfolio and a worthy one at that with a 30-day SEC of 5.37% and a modified adjusted duration of 2.41 years. SJNK’s duration is lower than that of traditional junk bond ETFs, potentially making the fund a better high-yield bet if and when interest rates rise.
SJNK’s exposure to energy issuers is also below that of its longer duration rivals, an important factor to consider as credit markets price in the impact of flailing oil prices on high-yield energy issuers from that sector. [Warnings for Junk Bonds With Big Energy Exposure]
SSgA Model Bond Portfolio
Chart Courtesy: SSgA