Enhance Yield, Dial Down Rate Risk with WisdomTree's New Bond ETF

WisdomTree has launched a short-term bond exchange traded fund to help investors potentially enhance yield generation and diminish interest rate risk by targeting the shorter end of the U.S. Aggregate Bond universe.

On Friday, WisdomTree rolled out the WisdomTree Barclays Yield Enhanced U.S. Short-Term Aggregate Bond Fund (BATS: SHAG). SHAG comes with a 0.12% expense ratio.

“Through its relationship with Bloomberg Barclays as index provider, WisdomTree helped develop an approach for SHAG that draws on the same investable universe as the Bloomberg Barclays U.S. Aggregate Index (the Agg) but focuses on ways to reduce interest rate risk while at the same time boosting yield potential. As a result, this approach may serve as a powerful tool for investors seeking to navigate the opening stages of a rising rate environment,” according to a WisdomTree note.

SHAG will try to track the price and yield performance of the Bloomberg Barclays U.S. Short Aggregate Enhanced Yield Index, which captures the short-term U.S. investment-grade, fixed income securities market while seeking to enhance yield within desired risk parameters and constraints, according to a prospectus sheet. As of May 1, the Short Agg Enhanced Yield provided a yield of 2.18%.

The underling index is comprised of subgroups of the Bloomberg Barclays U.S. Aggregate Index, covering Treasuries, agencies, credit and securitized, with effective maturities generally shorter than five years – the ST Agg universe has historically had a duration of between two and three years.

The benchmark also uses a rules-based approach to re-weight subgroups to achieve higher yields and underweights low-yielding securities Treasuries, while managing risk through constraints on expected tracking error and turnover, as well as sector, duration, and credit exposure relative to the ST Agg Universe.

“In a market environment where every basis point counts, overweighting treasuries might not be your first stop on the road to income,” Kevin Flanagan, Senior Fixed Income Strategist at WisdomTree, said in a note. “SHAG may serve as a powerful tool for investors seeking to navigate a potential rising rate environment.”

For more information on new fund products, visit our new ETFs category.

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