‘Enhanced’ Bond ETF Debuts

Yesterday, IndexIQ launched a short-duration fixed-income ETF that invests primarily in other ETFs. The IndexIQ Short Duration Enhanced Core Bond U.S. ETF (SDAG) tracks an index that uses momentum factors to overweight and underweight different sectors of the short-duration U.S.-dollar-denominated fixed-income market with the aim of outperforming a market value-weighted universe.

SDAG comes with an expense ratio of 0.36% and lists on the NYSE Arca.

The fund’s underlying index generally covers four key sectors: short-term U.S. Treasuries; short-term U.S. investment-grade corporate bonds; short-term U.S. high-yield debt; and short-term U.S. investment-grade floating-rate bonds.

Based on total return momentum, the index assigns more weight to high-momentum sectors and less weight to lower-momentum sectors, with a 25% cap placed on individual components representing high-yield sectors. The index rebalances monthly, according to the prospectus, which also notes the index included eight component ETFs as of the end of September.

“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,” said IndexIQ CIO Salvatore Bruno of the new fund.

“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 adding the potential for outperformance,” he added.

Contact Heather Bell at [email protected]