NUAG seeks to offer enhanced yield relative to the broad, investment-grade fixed income market with comparable risk and credit quality by reflecting the BofA Merrill Lynch Enhanced Yield US Broad Bond Index (Enhanced Index), which is designed to broadly capture the U.S investment grade fixed income market.
Rather than weighting by capitalization, the Enhanced Index assigns component securities into a variety of categories based upon asset class, sector, credit quality, and maturity, and then uses a rules-based methodology to allocate higher weights to categories with the potential for higher yields without significantly increasing risk or decreasing credit quality.
“You know we have a big research team part of our fixed-income division – I think we run to close to a quarter of a trillion dollars in taxable fixed-income under TIAA, and within that, they’ve been look at what are the factors that drive fixed income,” Kremenstein said. “In the aggregate, in the investment-grade bond universe, they really found that yield was the biggest driver of returns in the long-term, so they came up with the idea of re-weighting the constituent buckets of the Agg by yield.”
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