“We’re in a period of time when the baby boomers are starting to retire – 10 to 12 thousand of them per day,” Farris said, “and they’re looking for more yield in their investments. Even though rates are starting to go up, we’re still at historic lows for rates.”
Consequently, investors may turn to exchange traded fund strategies that can potentially help generate more attractive returns or yields. For instance, Nuveen recently launched an ETF alternative to the benchmark Barclays U.S. Aggregate Bond Index, the NuShares Enhanced Yield U.S. Aggregate Bond ETF (NYSEArca: NUAG). NUAG seeks to offer enhanced yield relative to the broad, investment-grade fixed income market with comparable risk and credit quality.
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.
Compared to the benchmark Barclays US Aggregate Bond Index, NUAG has a more underweight Treasuries exposure, but the Nuveen bond ETF overweights corporate debt and securitized debt. Given its lower triple-A Treasury exposure, NUAG has a lower overall credit quality exposure, with a greater tilt toward BBB-rated debt. However, due to its emphasis on corporate debt, along with slightly greater credit risk, the Nuveen ETF offers a higher yield, compared to the Barclays Aggregate Bond Index.
NUAG shows a 6.16 year effective duration and a 2.66% 30-day SEC yield.