WisdomTree launches enhanced yield US short-term bond ETF

May 17th, 2017 | By | Category: Fixed Income

WisdomTree has launched the WisdomTree Barclays Yield Enhanced US Short-Term Aggregate Bond Fund (Bats: SHAG). The ETF seeks to enhance yield but maintain similar risk characteristics compared to the short end of the US Aggregate fixed income universe.

WisdomTree launches enhanced US short-term bond fund

SHAG seeks higher yields but similar risk characteristics compared to the US short-term aggregate bond universe.

The fund tracks the Bloomberg Barclays US Short Aggregate Enhanced Yield Index which uses a rules-based approach to adjust the weights across 13 subcomponents of the short end (maturing in one to five years) of the Bloomberg Barclays US Aggregate Index.

WisdomTree believes this strategy may provide superior returns compared to traditional market capitalization benchmarks, especially during periods of rising interest rates. The firm notes that while strong US economic growth may boost credit returns, it is also likely to lead to an increase in nominal interest rates. In addition, WisdomTree highlights that core fixed income benchmarks have experienced a dramatic shift from their historical composition over the last 20 years; in particular, the government has outpaced corporations in debt issuance leading to market-capitalization weighted indices becoming heavily weighted toward US treasuries, resulting in historically low yields.

SHAG attempts to navigate this issue of reducing interest rate risk while at the same time boosting yield by generally overweighting credit securities and underweighting low-yielding treasuries.

The fund has a total expense ratio of 0.12% due to a contractual fee waiver in place until at least 31 December 2018. Its gross expense ratio is 0.20%.

“In a market environment where every basis point counts, overweighting treasuries might not be your first stop on the road to income,” said Kevin Flanagan, senior fixed income strategist at WisdomTree. “SHAG may serve as a powerful tool for investors seeking to navigate a potential rising rate environment.”

SHAG is WisdomTree’s second yield enhanced core fixed income strategy offering, following the launch of the WisdomTree Barclays Yield Enhanced US Aggregate Bond Fund (NYSE Arca: AGGY) in 2015.

According to WisdomTree, these strategies can serve as a complement or replacement for existing core fixed income strategies and are ideal for income-oriented investors looking to enhance yield or for those seeking opportunities across different parts of the yield curve.

“AGGY has delivered strong performance and we’ve seen great success with the fund,” said Kevin Flanagan. “SHAG offers a solution for those investors who wish to shorten the duration of their fixed income portfolio while still focusing on income.”

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