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New ETFs Bring Momentum To Fixed Income

May 11, 2016 1:25 pm
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Momentum is one of the most widely followed investment factors, but when it comes to the application of this factor in universe of exchange-traded funds, it is most often applied to equity-based products. IndexIQ, an ETF issuer with a reputation for unique offerings, is changing that.

On Tuesday, IndexIQ introduced two new fixed income ETFs rooted in momentum strategies, the IQ Enhanced Core Bond U.S. ETF (IndexIQ ETF Trust (NYSE: AGGE)) and IQ Enhanced Core Plus Bond U.S. ETF (IndexIQ ETF Trust (NYSE: AGGP)).


The IQ Enhanced Core Bond U.S. ETF follows the IQ Enhanced Core Bond U.S. Index and the new ETF is an ETF of ETFs, as its holdings are other bond funds. For example, AGGE's top 10 holdings include the iShares iBoxx $ Investment Grade Corp Bd Fd (NYSE: LQD) and the Vanguard Intermediate Tm Cpte Bd ETF (NASDAQ: VCIT). AGGE's top five holdings also include three ETFs holding mortgage-backed securities (MBS).

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AGGE measures momentum by comparing 45- and 90-day horizons. AGGE's underlying index has a yield of nearly 2.9 percent, according to issuer data. The new ETF charges 0.34 percent per year, or $34 for every $10,000 invested.


The IQ Enhanced Core Plus Bond U.S. ETF follows the IQ Enhanced Core Plus Bond U.S. Index. Like the aforementioned AGGE, AGGP is an ETF of ETFs. AGGP can allocate up to 25 percent of its portfolio to high-yield corporate bonds and up to five percent to emerging markets debt, according to IndexIQ. The new ETFs largest holdings also include LQD and VCIT.

AGGP's underlying index yields 2.63 percent, according to issuer data. The new ETF charges 0.35 percent a year, or $35 per $10,000 invested.

“Emerging market debt has been a strong performer to start 2016, driven in large part by ongoing dovish Federal Reserve policies, improving emerging market fundamentals and a suddenly weakening dollar,” said Salvatore Bruno, CIO of IndexIQ, in a statement. “For the ‘core plus’ approach used in AGGP, we felt it was important to have this exposure as one area our index and the fund could access when total return momentum was in the category’s favor.”

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