How to Lower Duration With Corporate Bonds

In the current rising rate environment, a number of financial advisors are suggesting investors to treat fixed income like the sun and limit prolonged exposure. In this case, as the Federal Reserve’s predilection for raising interest rates does not appear to be changing anytime soon, it’s best to take advantage of these short-term rate adjustments by limiting duration.

Related: Bond ETF Investors Are Steering Toward High-Yield

SFIG also mitigates some of the risks associated with highly leveraged corporate borrowers.

“Fortunately for investors, these are exactly the same factors that WisdomTree identified when creating our fundamentally weighted fixed income indexes. While a market cap-weighted approach owns every bond regardless of its fundamentals, in WisdomTree’s approach, we seek to eliminate the bottom 20% of issuers based on leverage, return on invested capital (a measure of profitability) and free cash flow over debt service (a measure of debt sustainability),” according to WisdomTree.

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