While the barbell approach is a strategic solution for fixed income investing, it’s particularly valuable in a rising rate environment. Interest rates are already at historic lows. Given the unprecedented level of fiscal and monetary stimulus, months of pent-up demand, normalization of supply chains and rollout of effective vaccines, we may see higher rates in the years to come.
As a result, the reflation trade has been receiving increased attention. In this environment, we believe it’s prudent to mitigate overall duration risk by implementing strategies that reduce it or hedge it out.
What Is a Barbell Investing Strategy?
With interest rates at such historical lows, investors should consider the time-tested “barbell” approach to fixed income investing. It attempts to take “rate calls” out of the process while also serving to mitigate potential rate risk. We offer three different barbell solutions to consider based on an investor’s income needs and risk parameters:
U.S. Treasury-Based: The WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY) paired with the WisdomTree Floating Rate Treasury Fund (USFR)
Investment Grade-Based: The WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY) paired with the WisdomTree Interest Rate Hedged U.S. Aggregate Bond Fund (AGZD)
Core Plus: The WisdomTree Yield Enhanced U.S. Aggregate Bond Fund (AGGY) paired with the WisdomTree Interest Rate Hedged High Yield Bond Fund (HYZD)
The desired outcome? Enhanced yield and lower interest rate risk.
Commentaries from Kevin Flanagan
The WisdomTree Barbell Strategy
When USFR, AGZD or HYZD is used in conjunction with AGGY we believe it's possible to generate the yield of the Bloomberg Barclays U.S. Aggregate Bond Index (Agg), if not even more with some pairings, while significantly reducing duration, or interest rate risk.