The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments

URL:  http://boards.fool.com/0-and-negative-duration-etfs-31122236.aspx

Subject:  0 and negative duration ETFs Date:  2/16/2014  6:48 PM
Author:  aleax Number:  35203 of 35400

Not exactly brand-new info but I just stumbled into it: WisdomTree launched (on Dec 31 I believe) four new bond ETFs with zero and negative duration: HYZD and HYND holding junk bonds, and AGZD and AGND holding the Aggregate Bond Index, in each case paired with shorting (often via futures) enough US Treasuries to make the whole portfolio's duration (sensitivity to interest-rate risk) zero or even negative (minus 5 years).

E.g, see http://www.wisdomtree.com/resource-library/pdf/materials/AGN... for AGND.

Yields aren't great (about 1.2% for the AG funds, 2.4% for the HY funds) but may be worth considering as part of one's portfolio's defense against interest risk (besides or maybe instead of ETFs holding floating-rate leveraged bank loans, like SNLN (eff. duration < 2 months, yield 4.67%), or short-maturity junk bonds like SJNK (eff. duration 2 years, yield 5.29%).

(Yeah, I _am_ perhaps excessively focused on below-investment-grade paper here -- problem being that, if you combine very short duration with very high quality, you end up with yields so low you might as well put the money in a CD... indeed my portfolio's main defense against interest rate risk is my substantial position in actively managed ETF HYLD -- duration 2.74 years, yield 7.69%, non-leveraged).

I think I'll give the new WisdomTree funds a year or so to mature and start proving themselves a bit, before risking money there. The theory seems sound (you're essentially betting that junk-to-Treasuries spreads won't widen too much, as you're long junk and short Treasuries -- does not sound like an unreasonable stance), but I'd like to see some `practice`, too;-).
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us