As we reach the later stages of the longest economic expansion on record, many investors have started positioning their portfolios for late cycle trends. To many, that may mean diversifying their equity holdings while strengthening their fixed income allocation with core bonds – with longer duration and higher overall issuer quality – to act as a portfolio stabilizer and reliable source of income.
A popular approach to gaining core fixed income exposure is to invest in a passive index strategy designed to track the Bloomberg Barclays US Aggregate Bond Index (more commonly referred to simply as “the Agg”). This index has historically delivered negative correlation to equities, while acting as a ballast within a diversified portfolio at a relatively low cost to investors. The Agg, however, has changed in recent years. One of the most significant changes that has surprised investors is the expansion of debt issued at the lowest end of the credit quality spectrum (BBB-rated bonds). At the same time, corporate debt has grown rapidly, pushing corporate bonds to their highest weighting ever in the Agg (approximately 25% as of 12/31/18), suggesting that this sector may likely drive more risk and return than it has historically.
THE AGG'S EXPOSURE TO CORPORATES IS AT A 35-YEAR HIGH
Strengthen Your Core
JAGG serves as a foundation for investors seeking a well-diversified, high-quality core fixed income portfolio, with a thoughtful, factor-based approach to selecting corporate issuers.