The momentum bond investment strategy may help enhance returns. IndexIQ research has revealed that over the period between January 2004 to July 2016, the momentum plus strategy outperformed the AGG by 141 basis points per year.
The smart beta bond ETF could also help investors weather the storm in a rising rate environment and in other periods of greater volatility within the broader fixed-income markets. The strategy outperformed the Barclays Agg Index during rising rate periods from June 2004 through July 2006, the Barclays Agg Index max drawdown period from April through October 2008, and the so-called taper tantrum of 2013.
Moreover, AGGP, like its name suggests, provides access to core positions “plus” up to 25% in U.S. high yield debt and up to 5% in U.S. dollar denominated debt of emerging market issuers to potentially help investors enhance returns, and so far, this plus position has helped the strategy outperform traditional benchmarks.
AGGP acts as a fund of funds, including bond ETFs that have exhibited strong forward momentum. The smart beta bond ETF’s top holdings include the Vanguard Intermediate-Term Corporate Bond ETF (NYSEArca: VCIT) 15.6%, Vanguard Mortgage-Backed Securities Index ETF (NYSEArca: VMBS) 14.2% and iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD) 14.0%.
The smart beta bond ETF comes with a 5.31 year duration, a 3.19% 30-day SEC yield and a relatively cheap 0.35% expense ratio.