Commentary

At the beginning of March, the committee’s outlook was for a very strong U.S. economy and sticky inflation well above the Fed’s 3% target. While the committee continues to believe this is the case, the ongoing Iran conflict created large market moves that required a reaction.

The Index shifted to neutral duration and a neutral curve position relative to the benchmark in April. The committee also decided to reduce conviction positions from 20% to 10%. This positioning will remain in effect in May.

Positioning in IG corporates (70% relative) and securitized (neutral) also remains unchanged.

The committee’s focus remains on the opening of the Strait of Hormuz. If/when tanker transit normalizes and crude reacts with lower prices, this would signal that the worst has passed. Thus, as investors anticipate more inflation from higher crude prices (and thus retail gas prices), we still view 10-year yields above 4.25% as an appropriate level to be neutral relative to the benchmark.

The characteristics, rationale, and deviations below reflect the index positioning relative to the baseline benchmark effective May 1, 2026.

Tilt Rationale 

Neutral Duration	The committee continues to view the economy as strong and inflation as sticky, but the recent surge in rates calls for a more risk-aware stance.
Neutral Curve	The Index continues to hold a neutral curve position relative to the benchmark.
70% Underweight IG Credit	The Index has held an underweight position relative to the benchmark in investment-grade corporate bonds.
Neutral Securitized	The Index holds a neutral position relative to the benchmark within the securitized sector.
5% Short-Term TIPS	A short-term TIPS position offers inflation protection at an attractive yield. It is a hedge against another large surge in crude prices or spike in inflation.
2% Interest Rate Hedged High-Yield	With credit spreads still tight, picking up yield from lower-quality corporates is an attractive play. If an end to the conflict materializes, high-yield bonds would benefit from the recovery.
3% Emerging Market Local Debt	The dollar proved to be the singular haven during the initial phases of the Iran conflict. As investors have pivoted towards a near-term end, this position has and will continue to benefit from de-escalation.

Allocation

Name	Market Value (%)
iShares MBS ETF	25.83
iShares 3-7 Year Treasury Bond ETF	15.37
Schwab Short-Term US Treasury ETF	13.00
Schwab Long-Term U.S. Treasury ETF	9.05
Vanguard Long-Term Corporate Bond ETF	6.31
iShares 7-10 Year Treasury Bond ETF	5.50
Vanguard Short-Term Corporate Bond ETF	5.25
iShares 0-5 Year TIPS Bond ETF	5.00
Vanguard Intermediate-Term Corporate Bond ETF	4.62
WisdomTree Emerging Markets Local Debt Fund	3.00
iShares Agency Bond ETF	2.25
WisdomTree Interest Rate Hedged High Yield Bond Fund	2.00
iShares BBB Rated Corporate Bond ETF	2.00
iShares 20+ Year Treasury Bond ETF	0.82

Historical Allocations