Get U.S. Bond Yield and Active Management with TAGG

Oith inflation data weighing heavily on financial markets, an active management strategy to help navigate volatile bond markets while earning a return is essential.

This is where getting expert management is of great benefit to investors who don’t want the added responsibility of managing their own investments. An ETF like managed assets T. Rowe Price QM US Bond ETF (TAGG) puts a bond portfolio in the hands of seasoned professionals.

The volatility that investors have seen lately is more than enough reason to entrust the keys to the bond portfolio to a professional. TAGG essentially does all of this in a dynamic investment vehicle of an ETF.

TAGG seeks to outperform the Bloomberg US Aggregate Bond Index. The index is broadly diversified and contains a mix of high quality fixed income instruments with varying maturity dates.

The obvious bias is in favor of US debt, with Treasuries making up the majority of holdings. As of February 4, the main holding (9% of the fund’s allocation) consisted of Treasury bills maturing in 2026.

The fund has an SEC yield of 2.4% over 30 days (as of December 31, 2021). The fund will also generally include US government and agency bonds, corporate bonds, mortgage and asset-backed securities and US dollar-denominated securities of foreign issuers.

The advisor generally invests in a way that creates a similar risk profile to the index, but will use quantitative modeling (QM) and fundamental research to outperform the index. This means that sometimes the fund may be overweight or underweight relative to the index.

When investors think of active management, the immediate thought process is to shout “expensive.” However, TAGG has an annual expense ratio of just 0.08%.

Potential restless ahead

Capital markets are well aware of the instability that economic data can bring. That said, the upcoming inflation data will certainly add an extra dose of volatility to the bond markets.

This is where an active management strategy can shine. A fund manager’s ability to maneuver markets and adjust debt holdings as necessary to optimize performance is a key benefit of active management.

“We could potentially get a very hard to digest number next week on the inflation front and that has the potential to cut markets to their knees,” said Jack Ablin, chief investment officer at Cresset Capital Management.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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