The objective of this model is to generate an interest yield in excess of the Barclays Capital Aggregate Bond Index while keeping the weighted average duration below that of the Index. One hundred percent of the model is invested in Fixed Income ETFs with a bias to taking credit risk vs. duration risk. Moreover, the model is invested with a global footprint with over 50% of the model allocated to international fixed income ETFs. The weighted average credit risk profile of the model is a notch below investment grade.


Global Fixed Income model Core-Satellite Implementation

A Core and Satellite approach has been used to build this model, with the Core including low cost, market capitalization weighted domestic fixed income ETFs like GNMA and SJNK. The Satellite includes ETFs that track alternative indices, attempting to add alpha over the Core indices. Examples include local currency emerging markets sovereign bonds, global high yield bonds, Latin America corporate bonds, senior bank loans, etc.


Global Fixed Income Model Duration vs. Yield (3/31/2014)

Duration vs. Yield Tradeoff (3/31/2014) Model Index
Weighted Average Duration 2.9 5.3
Yield to Maturity 4.8% 2.2%
Index: Barclays Aggregate Bond Index

Global Fixed Income Model Cost Summary

  • The weighted average cost of the Global Fixed Income Model is 0.49%
  • This compares very favorably to the Morningstar Category Average of World Bond Mutual Funds of 1.12% (Source: Morningstar Direct)
  • This is a reduction of 56% when compared to active money manager costs!
  • This is particularly important in light of the fact that over the last five years ending Dec’12, only 43% of Global Income Mutual Funds beat their benchmarks (per SPIVA Scorecard, Year End 2012)