Investors are faced with a plethora of options when it comes to the bond market. In a time where volatility makes for a challenging environment in the equities market, a safe-haven move to the fixed-income market also poses its own challenges, which calls for a strategic one-ETF-fits-all solution in the Western Asset Short Duration Income ETF (CBOE: WINC).

The move to shorter durations in 2018 was seen as a defensive move to hedge further rate risk after four increases in the federal funds rate by the central bank. Despite the Fed taking on a more dovish tone as it preaches more patience with respect to interest rate policy in 2019, fixed-income investors are still opting for short duration in the event more rate hikes are underway.

WINC utilizes a short-duration fixed-income strategy with a duration of less than three years. WINC seeks to generate current income via a diversified portfolio with an emphasis on low interest rate sensitivity, higher credit quality and active credit selection.

“We’ve seen a lot of money move towards the short end of the curve and with a duration under three (years), it will be a very attractive option for them,” Rick Genomi, Legg Mason’s Head of ETF Product Management, told ETF Trends.

Flexible and Cost-Effective

At just 29 basis points, WINC is a cost-effective solution to gaining access to actively managed, low-duration, higher credit quality fixed-income exposure with a focus on current income.

Key features of WINC:

  • Income Focus: WINC seeks current income through professional security selection and duration management.
  • Low Duration: It features a diversified and flexible income strategy with the potential of lowering interest rate risk, while maintaining attractive income.
  • Higher Quality: At least 80% of the securities are investment grade (IG) credit quality.
  • Active Expertise: WINC delivers the proven insights of a fixed-income leader in a cost-effective, transparent and liquid structure, with low minimum investment.

With the flexibility inherent in its ETF wrapper, WINC offers intra-day liquidity and can be traded throughout the day. The transparency afforded by the availability of daily holdings may allow investors to make more informed investment decisions. WINC is on a monthly income distribution schedule.

An “All-Weather” Approach

WINC uses an “all-weather” approach to income that incorporates offensive and defensive strategies to proactively target higher-quality income opportunities. Having the ability to look beyond core holdings to expand the opportunity set can allow Western Asset to potentially provide attractive income throughout different market cycles.

Providing core exposure within WINC to short-maturity IG corporate bonds–with additional allocations to below-IG (up to 15%), securitized (up to 15%), structured, emerging market and other non-benchmark sectors and securities–can improve yield and diversification. Enhanced diversification helps to defensively position the portfolio and helps mitigate concentration risks.

“The product design was very thoughtful in terms of primarily being in investment-grade corporate with modest flexibility to use other sectors,” Ellen Cramer, portfolio manager at Western Asset Management, told ETF Trends.

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