2022 threw markets for a whirl, that’s for sure, but don’t discount the potential for uncertainty and volatility in 2023, either. There is one factor that investors shouldn’t miss, though, according to WisdomTree’s head of fixed income strategy Kevin Flanagan, and that’s fixed income’s comeback — which investors can play in a sector rotation bond ETF like the WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY ).
“There’s one key aspect to any outlook that still resonates above anything else – and that is that there’s income back in fixed income,” Flanagan said on a recent episode of the “WisdomTree Basis Points” podcast. U.S. Treasury (UST) rates have brought yields to levels they haven’t reached for a period of about 15 years.
Investors looking to fixed income can see that trend in examples like YChart’s global bonds category, which has returned 1.72% YTD compared to -11.8% over one year. The turnaround in returns when comparing one-year to YTD returns in bond categories applies to a variety of categories on the database, from multisector bonds to intermediate core to corporate bonds.
But which bond sectors make the most sense given the latest signals from the Fed and interest rate moves? That’s where AGGY comes in. The sector rotation bond ETF, charging just 12 basis points, tracks an index of USD-denominated investment-grade debt securities that is divided into 20 subcomponents based on sector, credit quality, and maturity. The ETF reweights the 20 subcomponents to achieve higher yields, allowing it to move as needed across the bond spectrum.
AGGY has seen its net inflows jump from $8.5 million over one month to $21.6 million over five days. It has also outperformed its ETF Database category average and FactSet segment average over one month and three months, returning 0.5% and 4.6%, respectively.
Investors have all sorts of fixed income strategies to consider, but AGGY’s ability to maneuver across the various categories makes it an option to watch closely. For investors looking to take advantage of income returning to fixed income, AGGY is a candidate for a core holding in their portfolios.