ETF Watch: Short Term Bond Fund Debuts

May 18, 2017

Today WisdomTree is launching an ETF that will offer a yield-focused take on the short-term portion of the broad bond market. The WisdomTree Barclays Yield Enhanced U.S. Short-Term Aggregate Bond Fund (SHAG) tracks the Bloomberg Barclays U.S. Short Aggregate Enhanced Yield Index.

SHAG comes with a low net expense ratio of 0.12% that is among the lowest for broad-based short-term domestic bond ETFs. Only the iShares Core 1-5 Year USD Bond ETF (ISTB) is cheaper, at 0.08%, and unlike SHAG, ISTB doesn’t have a smart-beta twist.

The new fund is listed on the Bats exchange, which is owned by ETF.com’s parent company, CBOE.

Yield-Enhanced Core Investment
“This would be another addition to our family, our brand of yield-enhanced core strategies for fixed income,” said WisdomTree Senior Fixed Income Strategist Kevin Flanagan in reference to SHAG’s launch.

The fund’s underlying index targets subgroups of the Bloomberg Barclays U.S. Aggregate Index that include securities with effective maturities of less than five years. The methodology reweights the subgroups to achieve higher yield, though securities within each subgroup are value-weighted, according to the prospectus.

The index covers securities denominated in U.S. dollars ranging from Treasurys to corporate debt to mortgage- and asset-backed securities. Rebalancing occurs monthly, with the duration mostly kept within 0.5 years of the parent index’s duration, which ranges from two to three years, the prospectus said.

The Case For SHAG
“Rates could move a bit higher from what we’re looking at right now, but you’re still dealing with a historically low interest rate setting and investors are still looking for yield. We’re very cognizant of the fact that you don’t want to change the risk profile, you don’t want to search for yield or grab for yield, where sometimes you have to look for riskier investments to attain this,” Flanagan said, noting that SHAG’s methodology mainly involves reweighting the components in a widely accepted index.

“The focus here is to try to maintain a risk profile while trying to enhance yield at the same time—and also stressing or emphasizing the importance of a core approach,” he added, describing SHAG as a fund that could serve as a “bedrock” in a fixed-income portfolio.

SHAG is a complement to the WisdomTree Barclays Yield Enhanced U.S. Aggregate Bond Fund (AGGY), which launched in 2015 and currently has $135 million in assets under management. AGGY has a similar methodology.

Contact Heather Bell at [email protected].

 

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