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A Rising Star Among Bond ETFs

May 12, 2017 8:25 am
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A Rising Star Among Bond ETFs

It is often said that new exchange-traded funds struggle to attract an audience. Likewise, many industry observers are wondering the smart beta phenomenon will truly penetrate the fixed income space.

The IQ Enhanced Core Plus Bond U.S. ETF (NYSE:AGGP) addresses both of those concerns. Now a year old, AGGP has hauled in $235 million in assets, easily making it one of the most successful ETFs to come to market last year. And yes, AGGP can be classified as a smart beta bond ETF.

Amid Other Fixed Income ETFs, AGGP Shines

The IQ Enhanced Core Plus Bond U.S. ETF follows the IQ Enhanced Core Plus Bond U.S. Index. AGGP is an ETF of ETFs. AGGP can allocate up to 25 percent of its portfolio to high-yield corporate bonds and up to 5 percent to emerging markets debt, according to IndexIQ.

AGGP's biggest holdings include some of the biggest bond ETFs, such as the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE:LQD), the iShares iBoxx $ High Yield Corporate Bond ETF (NYSE:HYG) and the SPDR Bloomberg Barclays High Yield Bond ETF (NYSE:JNK). LQD is the largest investment-grade corporate bond ETF while HYG and JNK are the two largest junk bond ETFs.

“AGGP invests primarily, through exchange-traded products (ETPs), in U.S. Treasurys, U.S. investment grade corporate bonds, and U.S. investment grade mortgage-backed securities, and can allocate up to 25 percent in U.S. high yield debt and up to 5 percent in U.S. dollar denominated debt of emerging market issuers,” according to the ETF's issuer.

Based on a unique momentum methodology previously not seen in the fixed income ETF arena, AGGP can help investors boost income and yield. For example, the ETF's 30-day SEC yield of almost 3.2 percent is well above what is available on 10-year Treasuries.

This year, AGGP's exposure to high-yield and emerging markets debt has been steady, but in March, the ETF significantly increased its exposure to short-term U.S. government debt and investment-grade corporates while significantly reducing its exposure to mortgage-backed securities and intermediate-term Treasuries.

AGGP charges 0.35 percent per year, or $35 on a $10,000 investment.

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