With short term interest rates off of their lows and moving higher, IndexIQ debuted its first ever short-duration bond ETF on Tuesday.
The launch of IQ Short Duration Enhanced Core Bond U.S. ETF (NYSE Arca: SDAG) further expands IndexIQ’s suite of factor-based fixed income ETFs.
SDAG seeks to outperform the short duration, U.S. dollar-denominated taxable fixed income universe by using a momentum tilted factor strategy.
Salvatore Bruno, Chief Investment Officer of IndexIQ, told ETF Trends that SDAG uses a momentum based approach to overweigh and underweigh sectors.
“Most other short duration bond ETFs use amount of debt outstanding to weight the underlying bonds and thus the sectors,” Bruno said. “With the potential to provide positive performance relative to the US taxable credit/government index while maintaining low duration impact, SDAG can be a core ETF holding in the short duration bond asset category.”
Bruno said there is renewed interest by investors in short duration fixed income as a way to earn a positive real return with minimal volatility.
“Given an uncertain outlook going forward, a more dynamic strategy may be an attractive way to access this important asset class,” he said.
SDAG tracks, before fees and expenses, the performance and yield of the IQ Short Duration Enhanced Core Bond U.S. Index. It joins a growing family of fixed income ETF offerings from IndexIQ that already includes three first-of-their-kind factor-based fixed income offerings: the IQ Enhanced Core Bond U.S. ETF (NYSE Arca: AGGE) and IQ Enhanced Core Plus Bond U.S. ETF (NYSE Arca: AGGP), which were launched in May of 2016, and the IQ S&P High Yield Low Volatility Bond ETF (HYLV), the first high yield low volatility fixed income ETF, which launched in February of 2017.
Bruno said the launch of SDAG was a natural extension of work that began with the launch of our Enhanced Core suite of fixed income funds in 2016.
“After several years of abnormally low rates, we once again find ourselves in a rising rate environment, a situation where investors often move to the shorter end of the yield curve,” he said. “By combining short duration exposure with a momentum-driven approach, investors now have a powerful tool for gaining exposure to this key area of the fixed income market while also adding the potential for outperformance.”
Related: IndexIQ Debuts International ETF ‘IQIN’ That Looks to Relative Strength, Market Position
Kelly Ye, Director of Research of IndexIQ, said they are always looking for new ways to help investors meet their goals, particularly when it comes to income.
“The short-duration bond market is a logical next step in applying a factor-based approach to investing, and we believe SDAG serves as an important complement in many different types of yield-focused investors’ portfolios,” Ye said.
For more new ETF launches, visit our New ETFs category.