“We want to tilt towards where the returns are coming from to offer investors a little bit more yield while controlling for that interest rate risk,” Jordan Farris, Managing Director of ETF Product Development for NuShares by Nuveen, said.
The Enhanced Index does not weight components by market capitalization, instead opting to assign components into a variety of categories based upon asset class, sector, credit quality and maturity. The smart beta indexing methodology then utilizes a rules-based process to include higher weights to categories with higher yields while maintaining risk and credit quality at levels similar to the Base Index.
NUAG seeks to offer 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 (Enhanced Index), which is designed to broadly capture the U.S investment grade fixed income market.
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.
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