Strike a Balance Between Yield and Duration With This ETF | ETF Trends

The current market for bonds is causing a conundrum for fixed income investors trying to toe the line between getting maximum yield and giving up price appreciation. One way to get yield while also limiting rate risk is to stay within range of intermediate-duration debt.

This is what the Avantis Core Fixed Income ETF (AVIG) does with an average duration of about 6.4 years (as of the fund’s holdings on June 30). The majority of the fund, about 43%, resides in duration of about four to six years, thereby limiting duration as the U.S. Federal Reserve continues to tighten monetary policy with more rate hikes ahead.

Also, this pushes investors further out on the yield curve, which results in a 30-SEC yield of 3.28%. In order to get more yield, fixed income investors will certainly have to take on more risk, but AVIG doesn’t expose the investor to too much risk, with about 29% of its holdings in BBB-rated debt.

The majority of the fund resides in safe haven U.S. government debt at almost 50% of its holdings. The rest of the allocation is spread amongst AAA- to A-rated debt, which keeps risk-averse investors happy.

An Active Option in a Tricky Bond Environment

With just a 0.15% expense ratio, exchange traded fund (ETF) investors also get more dynamic exposure to the bond market with AVIG. An active management strategy allows the portfolio managers to essentially do what they do best: put control of the holdings in the hands of professionals.

In the tricky bond environment right now, that’s probably one the better solutions given the uncertainty ahead. While investors appear to be heading back into bonds again amid recession fears, this could tilt the yield the other way, but active management can compensate for any market changes.

Highlights of AVIG:

  • Invests in a broad set of debt obligations across sectors, maturities, and issuers.
  • Pursues the benefits associated with indexing, such as diversification and transparency of exposures, but with the ability to add value by making investment decisions using information embedded in current yields.
  • Efficient portfolio management and a trading process that is designed to enhance returns while seeking to reduce unnecessary risks and transaction costs.
  • Built to fit seamlessly into an investor’s asset allocation.

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