In a shifting interest rate environment, with the Federal Reserve eyeing a tighter monetary policy ahead, fixed-income ETF investors have to adapt to the changing market and look beyond the potential short-comings of traditional benchmarks like the Bloomberg Barclays U.S. Aggregate Bond Index, or so-called Agg.
For instance, the NuShares Enhanced Yield U.S. Aggregate Bond ETF (NYSEArca: NUAG) may help fixed-income investors take an alternative approach to bond investing.
“NUAG is a new way of looking at the aggregate bond market – hence the ‘new Agg’, and it’s really looking at the Agg bond market from a yield perspective,” Martin Kremenstein, Senior Managing Director of ETFs for NuShares from Nuveen, said at the recent Morningstar ETF Conference.
The Enhanced Index does not weight components by market capitalization, instead opting to assign components into a variety of categories based upon asset class, sector, credit quality and maturity. The smart beta indexing methodology then utilizes a rules-based process to include higher weights to categories with higher yields while maintaining risk and credit quality at levels similar to the Base Index.