Nuveen: New Angle On Bonds

Nuveen: New Angle On Bonds

Whether it’s a smart beta twist or an ESG angle, Nuveen’s fixed income ETFs offer a differentiated approach to investing in bonds

Reviewed by: ETF Report Staff
Edited by: ETF Report Staff

Jordan Farris

Jordan Farris
Managing Director &
Head of ETF Product Development



Through its enhanced yield and ESG-focused ETF offerings, Nuveen continues to address the growing income gap that many investors face in today’s historically low interest rate environment. Jordan Farris, Nuveen’s head of ETF product development, discusses what drives Nuveen’s lineup of fixed income ETFs.

In today’s interest rate environment, what are the main challenges investors face?
Generating sufficient income is a primary challenge facing today’s investors. We are living through an exceptionally long period of low interest rates with the potential for yields to decrease further if economic conditions deteriorate. While younger investors may be able to weather these conditions by investing with a long-term view, the baby boomer generation is facing a more severe set of challenges due to the current interest rate environment.

Compared to previous generations, baby boomers will likely live longer and will be doing so in better health. They will also be moving into retirement with more debt as compared to their elders. Living longer and healthier is desirable, but in the context of retirement, a major concern arises. How long will retirees’ savings last, and how will they be able to maintain a certain quality of life in retirement? Our challenge and goal as an ETF issuer is to help investors address these challenges in the best way possible.

How is the changing composition of traditional aggregate bond indices bringing these challenges to the forefront?
The composition of traditional aggregate bond indices has changed considerably over the course of the past 15 years. Many traditional fixed income benchmarks are weighted by issuance, meaning the issuer with the most debt receives the highest weight within the benchmark. In the wake of the credit crisis, the increase in U.S. Treasury issuance led to significantly higher exposure, creating several challenges for investors—declining yields and increasing duration. Together, these two factors paint a concerning picture for investors looking to reduce risk within their portfolios while still maintaining a certain level of income.

How has Nuveen approached fixed income product development within its “enhanced yield” ETF suite?
When bringing ETFs to market, we leverage internal strengths and capabilities that have the potential to provide investors with a solution to their most acute needs. Nuveen is well known for our ability to provide investors with income from a variety of securities. To address the income conundrum, we worked with Nuveen’s portfolio management and research teams to develop strategies that aim to: 1) drive superior total returns over time; and 2) provide more yield for clients utilizing exclusively investment-grade debt.

Our approach began with a traditional aggregate bond universe, which we segmented into subgroups based on asset class, sector, credit quality and maturity. We then overweight or underweight to maximize the amount of yield available from the portfolio within a set of risk constraints. Because risk control is of the utmost importance in the development of Nuveen’s enhanced yield ETF strategies, we manage the levels of duration, turnover, tracking error and underweight/overweight of the subgroups. This keeps the risk of the portfolio aligned to that of a traditional aggregate bond index while providing additional yield to investors.

How are advisors implementing these strategies in client portfolios?
Advisors are using NUAG and NUSA as both core and tactical allocations. As these ETFs were designed to ease implementation in client portfolios, the methodology and approach is consistent across both offerings.

For investors seeking an aggregate bond exposure, Nuveen Enhanced Yield U.S. Aggregate Bond ETF (NUAG), which just had its three-year anniversary, offers the potential for enhanced yield with the risk and credit quality profile of the broad U.S. investment-grade bond market.

Similarly, for investors who are more concerned with managing duration, but still seek enhanced yield potential relative to the short-term, U.S. investment-grade fixed income market, the Nuveen Enhanced Yield 1-5 Year U.S. Aggregate Bond ETF (NUSA) may be attractive.

How have changing societal values influenced fixed income ETF product development? And what sets Nuveen apart?
An additional investor concern we frequently address is the evolution of societal values and how that has created a demand for “responsible investing.” In fact, Nuveen’s Fourth Annual Responsible Investing Survey1 revealed strong interest in responsible investing among investors, with a vast majority indicating that they wish to make a positive impact on society (80%) and the environment (81%) through their investment choices. It further identified that 68% of investors agree that having deep conversations about personal values would make them more loyal to their advisors.

Responsible investing is a hot topic at present, with many asset managers bringing products to market over the past several years. However, we encourage advisors and investors to work with firms that: 1) have a history in the space; and 2) understand the application of available data sets within product structures. At Nuveen, we believe responsible investing can be a philosophy that is applied throughout an entire portfolio as opposed to being limited to a single sleeve or strategy. We also believe that investors should not have to sacrifice returns in order to align their personal values with their investments—a criticism of past products developed within this space.

With these beliefs and goals in mind, we’ve applied our more than five decades of responsible investing experience and leadership to create two fixed income ETFs that fully integrate environmental, social and governance criteria into the investment selection process while seeking to provide the risk and return characteristics of traditional fixed income benchmarks. In 2017, we launched the Nuveen ESG U.S. Aggregate Bond ETF (NUBD), a traditional aggregate bond exposure ETF that just celebrated its two-year anniversary. This past September, we brought the Nuveen ESG High Yield Corporate Bond ETF (NUHY) to market, which is the first and only ETF within the high yield category to fully integrate ESG criteria into the methodology.

The inclusion of ESG criteria brings an additional dimension of analysis that seeks to identify companies that are industry leaders across a variety of indicators such as corporate governance, human capital development or carbon footprint management. This criteria can be helpful in finding weaknesses within corporate business models that may be difficult to identify using traditional analytical methods, and can lead to a superior risk and return profile over time.

What ties all your fixed income ETFs together?
As one of the largest bond managers, our fixed income ETFs leverage the strength and expertise that our firm has brought to the market for over 100 years. Coupled with our legacy in responsible investing, we’ll continue to develop innovative products that offer investors the ability to incorporate their personal values into their portfolios—without sacrificing their investment goals. The ETF vehicle allows us to deliver that innovation with transparency, tax efficiency and cost effectiveness.


1Nuveen, Fourth Annual Responsible Investment Public Release Survey, 2018

This material is not intended to be a recommendation or investment advice; does not constitute a solicitation to buy, sell or hold a security or an investment strategy; and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

A word on risk
Investing involves risk; principal loss is possible. Interest rate risk occurs when interest rates rise, causing bond prices to fall. Credit risk arises from an issuer’s ability to make interest and principal payments when due, as well as the prices of bonds declining when an issuer’s credit quality is expected to deteriorate. For NUHY, investments in below-investment-grade or high yield securities are subject to liquidity risk and heightened credit risk. For NUBD and NUHY, because the indexes select securities for inclusion based on environmental, social and governance (ESG) criteria, the funds may forgo some market opportunities available to those that don’t use these criteria. There is no guarantee the Funds’ investment objectives will be achieved. ETFs seek to generally track the investment results of an index; however, a fund may underperform, outperform or be more volatile than the referenced index. These and other risk considerations are described in detail in the funds’ prospectuses.

Shares of ETFs are bought and sold at market price as opposed to net asset value. As a result, an investor may pay more than net asset value when buying, and receive less than net asset value when selling. In addition, brokerage commissions will reduce returns. Fund shares are not individually redeemable directly with the Fund, but blocks of shares may be acquired from the Fund and tendered for redemption to the Fund by certain institutional investors in Creation Units.

Before investing, carefully consider Fund investment objectives, risks, charges and expenses. For this and other information that should be read carefully, please request a prospectus or summary prospectus from your financial advisor, contact Nuveen at 800.257.8787 or visit

Nuveen, LLC provides investment advisory solutions through its investment specialists. Nuveen Securities, LLC, member FINRA and SIPC. Nuveen, LLC and its affiliates are not affiliated with Report.