Is A Competitor To Ultra Popular Bond ETF AGG In The Cards?

Bond ETFs are getting a lot of attention amid renewed concerns over global economic growth, fears related to the impact of Brexit from the European Union and a rollercoaster ride of oil prices. Given the turmoil in the global markets, investors’ craving for a steady current income is not surprising, driving yields to multi-year lows.

Yields on both 10-year treasury and 30-year treasury have touched record lows on July 1, 2016. This phenomenon was not just limited to the U.S. Ten-year yields fell to all-time lows in Australia and Taiwan as well while Bank of Japan and European Central Bank are continuing with negative interest rates to spur their economies. Meanwhile, last month, the Fed announced its decision not to raise interest rates and hinted that further increases would most likely occur at a slower pace than expected previously. In fact, the Fed lowered the number of potential hikes in each of 2017 and 2018 from four to three. Fed Chair Yellen even stated that a Brexit vote was one of the factors behind the Fed holding rates constant apart from mixed readings on the labor market and economic growth (read: Dovish Fed Trims U.S. Outlook: ETFs to Buy).

New Bond Index

This trend did not go unnoticed by Wilshire Associates Inc., which has introduced a new U.S. bond index - The Wilshire Bond Index. The index measures the performance of the U.S. taxable fixed income market based on actual holdings of U.S. institutional investors.

Thus, the index tracks the investable U.S. fixed income market in contrast to the popular Barclays (LON:BARC) US Aggregate Bond Index, which is calculated based on the universe of outstanding debt.

New Index = New ETF?

The global ETF market has been growing by leaps and bounds with assets invested under global ETFs/ETPs touching an all-time high of $3.138 trillion earlier this year. ETFs often track indexes and their performance becomes the measure for fund managers to beat or match (read: What's Driving the Global ETF Industry?).

One such ultra-popular fund is iShares Core U.S. Aggregate Bond ETF (AX:AGG) which tracks the Barclays US Aggregate Bond Index. The fund invests about $38.8 billion of assets in 5,528 securities. The fund trades in impressive volume of almost 2.9 million shares on an average. The fund has a very low expense ratio of 8 bps. It hauled in $6.8 billion in the first half of the year itself (read: 1H ETF Asset Report: Gold Glows; Equities Fade).

With a number of new ETFs being launched every week, it won’t be surprising to see a new ETF tracking the Wilshire Bond Index. Additionally, current market conditions look favorable for a new bond ETF.

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ISHARS-CR US AG (AGG): ETF Research Reports

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