Hear that? That’s the sound of numerous advisors and investors looking around for a sign in fixed income investing. Fed Chair Jerome Powell appears intent on convincing markets that, yes, we could be in for more rate hikes. Despite pausing in June, that rate uncertainty has failed to offer a respite to markets wondering about factors like duration. For those torn between adding short-term offerings and adding duration, now may be the time to revisit the Barbell Strategy.
For WisdomTree, the Barbell Strategy attempts to take so-called “rate calls” out of the fixed income investing process while limiting duration risk. The right combination of bond, treasury, investment grade, and other assets hangs a “barbell” on each end of a time frame.
WisdomTree’s Fixed Income Barbell tool& allows investors to look at the performance of various fixed income ETF combinations. For example, take the WisdomTree Floating Rate Treasury Fund (USFR ) and the WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY ). Right now, according to the tool, a 50/50 allocation offers a 5.2% yield to worst.
See more: Treasuries Fund USFR Ready Higher for Longer
Investors and advisors can also use the tool to switch to 60/40, 70/30, or other splits between AGGY and USFR. That can raise or lower factors like duration risk, for example. With the Fed offering a nice dose of “don’t fight the Fed,” finding the mix of treasuries, core bonds, and other fixed income assets is key.
USFR provides one potent option. The ETF has added $1.1 billion over the last month in net inflows, charging just 15 basis points. Its use of floating rate notes (FRNs) allows it to adapt quickly to shorter-term interest rate changes. AGGY, meanwhile, charges just 12 basis points to bring a sector rotation approach to U.S. aggregate investment-grade bond investing. AGGY does consider factors like credit quality and sectors, returning 3.1% YTD.
The Barbell tool and strategy stand out as just one set of resources at WisdomTree Investments for investors to consider. Whether in a 50/50 split or otherwise, AGGY and USFR stand out as a duo capable of handling the duration question.
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