Income-oriented investors have found it harder to generate yields in a low-rate environment.
As more look to alternative bond portfolio compositions to maximize income while maintaining lower risk exposure, investors can consider a smart-beta bond exchange traded fund strategy that seeks to enhance yields.
On the upcoming webcast, An Investment Grade ETF Strategy for Diversifying Income, Kevin DiSano, Managing Director and Head of ETF Sales at Nuveen, and Jordan Farris, Vice President and Head of ETF Product Development at Nuveen, will consider the potential risks ahead and delve into a fixed-income strategy that can help core bond investors potentially enhance returns.
For instance, the recently launched NuShares Enhanced Yield U.S. Aggregate Bond ETF (NYSEArca: NUAG), which tries to reflect the performance of the BofA Merrill Lynch Enhanced Yield U.S. Broad Bond Index, offers the potential for enhanced yield with the risk and credit quality profile of the broad investment-grade fixed-income market.
[related_stories]NUAG primarily consists of U.S. government debt securities, along with bonds issued by U.S. corporations, residential and commercial mortgage-backed securities, asset-backed securities and U.S. dollar-denominated debt securities issued by non-U.S. governments and corporations.
As opposed to traditional market capitalization-weighted methodology, the underlying index uses a rules-based methodology that allocates higher weights to securities and sectors with a higher potential yield while maintaining comparable risk.
NUAG currently shows a 6.55 year effective duration and a 2.46% yield to maturity.
Credit quality breakdown includes investment-grade AAA 58.6%, AA 3.7%, A 2.3% and BBB 35.5%.
Sector tilts include securitized 34.6%, corporate 33.3%, Treasury 23.4% and government-related 8.3%.
Compared to the benchmark Barclays US Aggregate Bond Index, NUAG has a more underweight Treasuries exposure, but the Nuveen bond ETF overweights corporate debt and securitized debt. Given its lower triple-A Treasury exposure, NUAG has a lower overall credit quality exposure, with a greater tilt toward BBB-rated debt. However, due to its emphasis on corporate debt, along with slightly greater credit risk, the Nuveen ETF offers a higher yield, compared to the Barclays Aggregate Bond Index.
Financial advisors who are interested in learning more about the fixed-income market can register for Thursday, November 10 webcast here.