ETF Trends publisher Tom Lydon discussed the NuShares Enhanced Yield U.S. Aggregate Bond ETF (NUAG) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
The benchmark Bloomberg Barclays US Aggregate Bond Index exposes investors to greater risks ahead – the benchmark has become heavily weighted toward low-yielding U.S. Treasury debt.
NUAG is a smart beta bond ETF that may be a suitable alternative to traditional Agg exposure. It offers 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.
Instead of weighting by capitalization, the Enhanced Index assigns component securities into a variety of categories based upon asset class, sector, credit quality, and maturity. It 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.
NUAG’s sector weights are securitized 40.6%, corporate debt 34.5%, U.S. Treasury 20.4%, and government 4.5%.