The objective of this model is to generate an interest yield in the 2-3% range while keeping the weighted average duration below 3. 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 30% of the model allocated to international ETFs. The weighted average credit risk profile of the model is investment grade.


Short Duration 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, FLOT, and SHV. The Satellite includes ETFs that track alternative indices, attempting to add alpha over the Core indices. Examples include local currency emerging market sovereign bonds, global high yield bonds, international corporate bonds, senior bank loans, shorter term domestic high yield bonds, etc.


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

Duration vs. Yield Tradeoff (3/31/2014) Model Index
Weighted Average Duration 3.0 3.8
Yield to Maturity 3.3% 1.56%
Index: Barclays Intermediate Govt/Credit Index

Short Duration Fixed Income Model Cost Summary

  • The weighted average cost of the Short Duration Fixed Income Model is 0.37%
  • This compares very favorably to the Morningstar Category Average of Short Term U.S. Bond Mutual Funds of 0.84% (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)