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The first full week of November brought with it headline events (the elections and the Fed meeting) that gave for our industry the opportunity to revisit outlooks and reposition for fixed income heading into year-end, and as we prepare for 2025. This type of landscape is ideal for active core strategies so investors can have solutions that are both flexible and responsive to changing investment conditions. The Bianco Research Fixed Income Total Return Index (BTRINDX) is an active core strategy that underscores the importance of this approach to fixed income investing, where an intra-month repositioning was recently implemented.

BTRINDX is based on qualitative and quantitative inputs including economic data and interpretations of government policy, and just implemented a repositioning in the various key inputs that help make up its active core strategy. The characteristics below reflect how BTRINDX would presently position a portfolio of fixed income ETFs seeking to achieve maximum total return over a comparable baseline, or benchmark neutral portfolio of fixed income securities.

Rationale

Let’s look at the rationale behind this repositioning using the five key areas involved.

Duration

Prior to this most recent adjustment, BTRINDX had a 90% under-weight compared to the benchmark’s duration, but has now moved to a neutral duration in mid-November. While the outlook sees the economy and inflation remaining stronger than expected, the surge in Treasury yields since September warrants a more neutral stance.

Yield Curve Position

Given the Fed’s projected cutting path, it is anticipated that yield curve steepening will accelerate and benefit a bulleted structure, a bond strategy that focuses on maturities that are concentrated around a similar maturity on the yield curve.

Corporate Credit

Given record corporate bond issuance, tight credit spreads and concerns for an overbought equity market, BTRINDX remains 70% under-weight in credit in November.

Securitized

Due to relative value considerations, BTRINDX increased its over-weight exposure to MBS relative to the benchmark in November. In addition, the index’s securitized sector holds a 25% position in current coupon-to-be-announced MBS issues, down from 50% at the start of November.

Conviction

At the start of November, BTRINDX held a 10% allocation to 0-5 U.S. TIPS and 10% in WisdomTree’s U.S. Dollar Bullish Fund (USDU). Both positions remain unchanged.

The bullish USD bet would benefit if the U.S. economy outperforms the rest of the world, leading to higher yields and a strong dollar. The TIPS position would benefit from higher-than-expected inflation readings.

Conclusion

The potentially changing bond investment landscape and heightened volatility compared to years past can present a challenging backdrop for fixed income investors. The WisdomTree Bianco Total Return Fund (WTBN), which seeks to track the price and yield performance before fees and expenses of BTRINDX, offers investors an active core strategy to help navigate their bond portfolio for what may lie ahead.