Smart Beta and Fixed Income Meet With These New ETFs

“The AGGE carries an expense ratio of 34 basis points and yields 2.9 percent at last check. It seeks to outperform the U.S. dollar-denominated, taxable, fixed income universe by using a momentum strategy that is measured by comparing a short-horizon (45-day) moving average of returns to a longer-horizon (90-day) moving average of returns, while taking into account recent volatility of each sector,” reports

Investors may be attracted to the cheap valuations and wider yield premiums that these bonds offer over safe-haven government bonds after benchmark yields on 10-year Treasuries dipped back toward all-time lows. Moreover, the rebound in energy prices could have reassured investor fears of a potential defaults in the energy space.

Related: Investors Love Fixed Income ETFs

AGGE tracks the IQ Enhanced Core Bond U.S. Index. Top holdings in that benchmark include investment-grade and intermediate-term corporate bond ETFs, such as the the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) and the Vanguard Intermediate-Term Corporate Bond ETF (NYSEArca: VCIT).

According to Bank of America Merrill Lynch index data, risk premiums on U.S. investment-grade corporate debt have been cut by half a percentage point since mid-February due to rising demand from Asian and European investors. Hans Mikkelsen, head of U.S. investment-grade credit research at Bank of America Merrill Lynch, anticipates that by the year-end, premiums could dip to about 1.5 percentage points from current levels of around 1.72 percentage points as European and Asian investors funnel as much as $500 billion into American corporate bonds in 2016, or up 50% year-over-year.

Tom Lydon’s clients own shares of LQD.