The Index strategy is based on qualitative and quantitative inputs including economic data and interpretations of government policy. Asset allocation guardrails include 50% – 200% allocation relative to the benchmark for credit, duration, and structure/mortgage weight. A high-conviction exposure to more speculative or diversifying positions is constrained to 0% – 20%.
The characteristics below reflect how we would best position a portfolio of fixed-income ETFs to achieve maximum total return over a comparable baseline neutral portfolio of fixed-income securities (benchmark).
Relative Positioning
Duration
Neutral
Yield Curve
Bulleted
Corporate Credit
Underweight
Securitized
Overweight MBS
Conviction
20% Senior Loans
Rationale
Neutral Duration
The Index remains at a neutral duration.
While the committee expects the economy and inflation to remain stronger than expected, the surge in yields since September warrants a neutral stance.
Bulleted Curve Position
The Index holds a bulleted curve position relative to the benchmark.
Given the Fed’s projected cutting path, the committee anticipates the steepening will accelerate, benefiting a bulleted structure.
70% Underweight Credit
The Index holds a 70% underweight position in corporate bonds relative to the benchmark due to record corporate bond issuance and an overbought equity market.
130% Overweight With Partial Allocation to Current Coupon MBS
In November 2024, the Index moved to 130% overweight MBS relative to its benchmark. The Index continues to hold this position.
In addition, the Index’s securitized sector holds a portion of this position in current coupon-to-be-announced MBS issues.
20% Senior Loans
In January 2025, the Index held a 10% allocation to a dollar-bullish strategy and a 10% allocation to senior loans.
The committee has decided to exit that 10% USD position and shift into a 20% senior loan position. This position offers a higher yield compared to corporate bonds with more covenants.
Allocation Changes
| Name | February 2025 | January 2025 |
|---|---|---|
| iShares MBS ETF | 26.70 | 26.80 |
| Invesco Senior Loan ETF | 20.00 | 10.00 |
| iShares 7-10 Year Treasury Bond ETF | 16.25 | 16.20 |
| Vanguard Intermediate-Term Corporate Bond ETF | 9.00 | 9.10 |
| Simplify MBS ETF | 8.75 | 8.85 |
| Vanguard Long-Term Corporate Bond ETF | 7.65 | 6.80 |
| Schwab Long-Term U.S. Treasury ETF | 6.95 | 7.25 |
| iShares BBB Rated Corporate Bond ETF | 4.70 | 5.00 |
| WisdomTree BBG USD Bullish Fund | 0.00 | 10.00 |