Fixed-income investors have enjoyed a smooth and easy ride over the past three decades, but the environment is quickly changing. Nevertheless, there are some bond ETF strategies that may help investors adapt to the changing times.
Many fixed-income investors have looked to the Bloomberg Barclays U.S. Aggregate Index, a benchmark for many intermediate-term funds, to guide their portfolios. However, a changing rate environment may weigh on this traditional play.
“I think it is important for advisors and investors to really understand that the ‘Agg’ is not something that does not change. Over time, it has changed. It’s evolved with fixed-income markets,” Martin Kremenstein, Head of ETFs at NuShares by Nuveen, said at the 2018 Morningstar Investment Conference.
Compared to a decade ago, the Agg has increased its Treasury or government debt exposure, greatly diminished credit exposure and shows a longer duration, which makes it much more susceptible to interest rate risks.
Alternatively, investors may look to something like the NuShares Enhanced Yield U.S. Aggregate Bond ETF (NYSEArca: NUAG).