“Since launch in September of 2016, NUAG has realized superior returns due to the unique weighting methodology,” Farris told ETF Trends. “It will not outperform in all market scenarios, but our research shows that this type of strategy has generally outperformed over full market cycles. It has the added benefit of delivering an outcome to investors–increased income–that is needed and relevant at this point in time.”
Being flexible in the current fixed income environment can certainly be a boon, particularly when yield curves on government debt, such as the 10-year Treasury, have been relatively flat as of late. With investor appetites getting skewed towards a more risk-on approach, delving into higher yields like those offered by corporate bonds is an alternative strategy.
Related: Nuveen Rolls Out Socially Responsible Bond ETF
“The increase in exposure to Treasuries in addition to generally lengthening duration since the credit crisis has weighed on performance,” said Farris. “In contrast, NUAG currently allocates more weight to investment grade corporate bonds and securitized credit offering enhanced yield without significantly extending duration.”
With the second half of 2018 in full swing, it will be interesting to see how the bond markets respond to an economic environment where higher interest rates are abound. If the economic data is conducive to more rounds of interest rate spikes by the Federal Reserve, deconstructing the general bond market could be necessary strategy rather than an option.
For more fixed income strategies, visit the Fixed Income Channel.