Commentary
The index has been neutral on duration relative to the benchmark over the past few months. Given the rise in rates, moving to long duration and positioning for lower rates is an attractive play as the Fed restarts its inflation fight.
TIPS are a strong hedge against persistent inflation, especially as energy costs remain elevated. Combining an overweight on duration with some inflation protection via TIPS is a winning combination.
Convertibles (CWB) still remain attractive by providing exposure to technology and electricity, two sectors that have benefited significantly from the AI infrastructure buildout. Pessimism is dominant right now as investors raise concerns about valuations and funding for AI-related companies. Issuance relative to projected returns warrants close monitoring, but the committee sees constant negativity as a strong signal we are not at that tipping point yet.
The Committee has decided to move to 105% duration relative to the benchmark while maintaining the convertible allocation and adding a 5% allocation to TIPS. The securitized allocation remains neutral relative to the benchmark, while IG credit remains 90% relative.
The details below reflect index positioning relative to the baseline benchmark effective October 1, 2026.
Relative Positioning
90% relative underweight
5% convertibles & 5% in TIPS
Allocation
| Name | Market Value (%) |
|---|---|
| iShares MBS ETF | 25.40 |
| iShares 3-7 Year Treasury Bond ETF | 14.61 |
| Schwab Short-Term U.S. Treasury ETF | 11.25 |
| Vanguard Long-Term Corporate Bond ETF | 9.05 |
| Schwab Long-Term U.S. Treasury ETF | 8.46 |
| Vanguard Intermediate-Term Corporate Bond ETF | 7.51 |
| SPDR Bloomberg Convertible Securities ETF | 5.00 |
| iShares TIPS ETF | 5.00 |
| Vanguard Short-Term Corporate Bond ETF | 4.98 |
| iShares 7-10 Year Treasury Bond ETF | 4.24 |
| iShares Agency Bond ETF | 2.00 |
| iShares BBB Rated Corporate Bond ETF | 2.00 |
| iShares 20+ Year Treasury Bond ETF | 0.50 |