Ult-6
  • Why Ultumus
  • Our Products
    • Global Index Aggregation
    • Global ETF Aggregation
    • PCF Calculation
    • Global Dividend Forecast
    • Global Corporate Action Service
    • Cosmos ETF Create / Redeem Platform
  • Use Cases
    • ETF Issuers
    • Market Makers
    • Asset Managers & Investor Services
    • Equity Derivatives & Index Trading
    • Case Studies
  • News & Insights
    • Global Index Rebalance Calendar
    • Insights
    • News
    • Restricted Content
  • User Guides
    • PULSE - API
    • COSMOS – Create/Redeem Platform
    • IRONHIDE – Data & Tools UI
  • Contact Us
  • Login

News

Short Duration Fad

By Ultumus
February 06, 2019

USA

Legg Mason lists actively managed short duration ETF

Legg Mason subsidiary Western Asset is listing a new investment grade bond ETF that offers shorter duration exposure. The Western Asset Short Duration Income ETF (WINC) will invest 80% of its assets in US-dollar denominated investment grade bonds -- of more or less any kind. These include corporate bonds, notes, debentures, commercial paper, rule 144As and more. The fund leaves 15% of its assets open to MBS, ABS CDOs.

WINC can invest in both US and non-US issues, although will concentrate on US issues. It will target an overall portfolio duration of 3 years or less.

It will charge 0.29%.


 

Analysis – a short duration fad

ETF product innovation goes in cycles and fads. In 2017 the fad was future tech. In 2018 the fad was ESG. This year it seems possible that short duration could be a fad, as this is the third listing in several weeks.

Short duration has – or maybe had – a great background story. With interest rates rising, the decade-long long duration trade was about to stop working. Investors accordingly need to pivot to shorter duration bonds, which are less exposed when rates rise.

But future interest rates are tricky to predict. Whereas 3 months ago it was “obvious” the Fed would continue raising rates, now it seems likely that the Fed will pause or even lower them.

With this in mind, it might be better to regard short duration ETFs as market timing devices. And market timing, when botched, has potential costs. Crucially for a bond ETF, the potential cost is foregoing the term premium. Research shows that longer duration bonds tend to outperform, as they take on more risk. We can see this when we compare the total returns of short duration ETFs, (like iShares NEAR) with longer-term bond ETFs (like Vanguard's BLV).

Investors who do not wish to try timing the market may be better off with a longer duration bond fund.
All posts
About Author
Ultumus

You might also like
Duration and Debt
Duration and Debt
February 06, 2019
Yoda vs Jedi
Yoda vs Jedi
February 06, 2019
IShares Inflates
IShares Inflates
February 06, 2019
Ult-6-wit

Our market leading technology powers four highly customizable solutions.

Products
  • Index Aggregation
  • ETF Aggregation
  • PCF Calculation
  • Dividend Forecast
  • Global Corporate
    Action Service
  • Cosmos ETF Platform
Site map
  • Why Ultumus
  • Our Products
  • Insights
  • Contact Us
Contact Us
  • +44 (0) 203 998 2500
  • info@ultumus.com

©2022. All rights reserved