TOTL provides a higher yield and lower duration than the benchmark Barclays U.S. Aggregate Bond Index, with a smaller standard deviation. Additionally, the active ETF has a greatly diminished exposure to U.S. Treasuries while over-weighting agency MBS, non-agency debt, emerging market bonds, bank loans and high-yield, among others.
“The advantage of an active fund like TOTL is that it has more flexibility in security selection and risk management capabilities than an index. The fund manager can increase or decrease the effective duration, as well as shift assets towards areas of the bond market they feel offer greater value. There are also limits (or guidelines) on sector exposure that make this fund suitable as a diversified core holding,” according to ETF Daily News.
The Barclays U.S. Aggregate Bond Index has been the go-to benchmark for many fixed-income investors. The benchmark tracks U.S. investment-grade corporate bonds, mortgage-backed securities and U.S. Treasuries. However, potential investors should note that the index excludes municipal bonds, Treasury inflation-protected securities and high-yield debt.
As the Federal Reserve looks to normalize interest rates, bond ETF investors have shown greater interest in actively managed options that could better adapt to the higher rates.
“Right now, TOTL yields 3.02% and has an effective duration of 5.02 years. It also carries exposure to bank loans, emerging market debt, and other asset backed securities that you won’t find in many benchmarks,” adds ETF Daily News.