Nuveen, an operating division of TIAA Global Asset Management, has launched the NuShares Enhanced Yield 1–5 Year US Aggregate Bond ETF (NYSE Arca: NUSA), seeking to provide enhanced yield relative to the taxable short term US investment grade fixed income market with comparable risk and credit quality.
The NuShares Enhanced Yield 1–5 Year US Aggregate Bond ETF uses an optimization approach to increase the portfolio yield relative to the broad investment grade US short-term bond market, while maintaining similar risk characteristics.
The fund tracks the BofA Merrill Lynch Enhanced Yield 1–5 Year US Broad Bond Index which offers an alternative strategy to short-term bond index funds weighted by issuance size. In contrast, the rules-based methodology allocates higher weights to securities and sectors that have the potential for higher yield while maintaining comparable risk.
The index covers US Treasuries (35% target allocation), government credit (15%), debt securities issued by US corporations (30%), residential and commercial mortgage-backed securities (15%), and asset-based securities (5%) that are publicly offered for sale in the US.
The qualifying universe is grouped into a total of 25 segments constructed according to asset class, sector, maturity, rating, and mortgage pool characteristics. Each segment along with the asset class groupings described above are constrained by a maximum allowable deviation from their corresponding market cap weighting, thereby maintaining similar risk characteristics to the broad market. The constituent weights within the index are determined through an optimization process designed to maximize the index yield while providing for the constraints. The index is rebalanced monthly.
There are 4,061 securities within the index and the largest credit quality profile is AAA (46.8%) while bonds rated BBB, or just above junk status, contributes 29.0% to the overall index performance. The yield-to-worst is 2.1% and the effective duration is 2.9 years. (Data as of 28 February 2017)
The ETF, which has a total expense ratio of 0.20%, may serve as a diversified core fixed income portfolio allocation.