Kevin Flanagan:
What we're looking at here is some of the uncertainties that the markets are dealing with will hopefully reside. And what we will begin to see is back to a more fundamental approach, economy, inflation, and the Fed.
Kristen Scholer:
NYSE-listed financial services company WisdomTree is here at the exchange to celebrate the 10-year anniversary of one of its bond funds. Well, joining me now with more on this anniversary as the fund is listed on NYSE Arca is Kevin Flanagan, Head of Fixed Income Strategy at Wisdom Tree. Kevin, welcome.
Kevin Flanagan:
Thanks for having me.
Kristen Scholer:
What is the significance of this milestone?
Kevin Fl
Well, it's our Yield Enhanced U.S. Aggregate Bond Fund. The ticker is A-G-G-Y. As you mentioned, a 10-year anniversary. We like to say it's built to last. So, not only looking for performance, but also providing income for the bond investor.
Kristen Scholer:
What all does this product offer?
Kevin Fl
Well, you go to the Agg, right? And you look at some of the sub components. What we do is we reweight those. And that's how we try to come up with some of the yield enhancement and enhanced performance as well.
Kristen Scholer:
What kind of exposure does this give investors?
Kevin Fl
It's all investment grade. So we're not talking about leverage or emerging markets. So it's an investment grade approach. It's a poor approach that we feel important specifically in a barbell type of strategy.
Kristen Scholer:
And what do you think makes it unique in the market?
Kevin Fl
Well, I think it was one of the first to come to market that actually took the AG and tried to find a better way of doing it. And that's exactly what we've been trying to do over the last 10 years. Amazing.
Kristen Scholer:
So what is the celebration for this anniversary going to entail?
Kevin
Well, we're going to be here ringing the bell up at the podium my first time. I've been in the business over 30 years, so pretty excited about that.
Kristen Scholer:
That is exciting indeed. And where do you want to take this product going forward?
Kevin Fl
Well, I think we're just going to continue to build it out, make it a part of a long term strategic solution for bond investors.
Kristen Scholer:
Yeah. What kind of assets under management does this product have?
Kevin Fl
It has a little bit, I think, under 800 million, right under that billion mark. And hopefully we're going to continue to see it grow as we move forward.
Kristen Scholer:
How does that compare to what else is in the industry?
Kevin Flanagan:
Well, it varies, right? It depends upon some instruments have been around for a long time. They could be multi-billion. Some are newer to the street and they could be just a couple million. So it's sitting in a, I think a pretty good comfort zone.
Kristen Scholer:
How do market conditions impact your strategy?
Kevin Fl
Well, obviously you start with the Fed and interest rates and monetary policy. That's going to have an impact on it as well. And there is a credit component. So you're looking at rates and credit when I think you're focusing on AGGY.
Kristen Scholer:
Yeah. How important is the direction from the Fed chair in this product?
Kevin Fl
Well, more often than not, the closer you are to Fed funds, the more of the tight relationship. But nevertheless, there still is that focus. If the Fed were to cut rates, that you would hopefully see some outperformance from the interest rate sensitive side.
Kristen Scholer:
What are your thoughts on the Fed and the Fed chair right now?
Kevin Fl
Well, I think that right now, Powell is just waiting for the economic numbers to come to him and make a decision accordingly we do think one or two rate cuts will probably happen by the end of this year.
Kristen Scholer:
In terms of the treasury market, how have you seen that impacted by some of the geopolitical turbulence that we've seen this year?
Kevin Fl
That's a great question. Traditionally, what we've seen sometimes is a risk-off kind of buying in treasuries, but that didn't last very long, which is unusual from what we've seen in the past. So I think global investors are coming out of a zero interest rate policy and getting used to what we would call a more normal rate setting.
Kristen Scholer:
How should our viewers be considering municipals in this environment?
Kevin Fl
Well, municipals, in our opinion, represent an opportunity from a relative value perspective. And what we just found out with the one big, beautiful bill, tough to say sometimes, is that the federal tax exempt status was, for the most part, not altered or adjusted. So that's good news. It removed a layer of uncertainty for municipals.
Kristen Scholer:
How would you describe your strategy? Is it rules-based?
Kevin
Yeah, that's what we tend to do. We call it, some people say smart beta, we refer to it as modern alpha, but yeah, they are rules-based. So there is a modest active component. We have other bond funds that are going to be a little bit more active than that. So this is kind of in the middle between say a passive and an active approach. And that's, I'm referring to AGGY.
Kristen Scholer:
What do you see when it comes to investor demand?
Kevin Fl
Well, I think investor demand here for bonds is just going to continue to be focused on user-friendly solutions. And I think that's what the ETF wrapper provides. I go back from the old school when people bought individual bonds, but we've really transformed into a new generation of bond investor.
Kristen Scholer:
Anything more you can share today, Kevin?
Kevin Fl
No, I just think that what we're looking at here is some of the uncertainties that the markets are dealing with will hopefully reside. And what we will begin to see is back to a more fundamental approach economy, inflation and the Fed.
Kristen Scholer:
Kevin Flanagan, Head of Fixed Income Strategy at WisdomTree. Thanks and congratulations.
Kevin Fl
Thank you very much.
