Commentary
It’s been a tough month for tech and the convertibles, but don’t count the rally over just yet.
Convertibles (CWB) provide exposure to technology and electricity, two sectors that have benefited significantly from the AI infrastructure buildout. Given recent declines attributed to concerns over valuations and earnings of AI-related companies, pessimism is rampant. We view this as a signal of digestion/consolidation, not a faltering rally.
The AI infrastructure buildout is one of the largest in history, rivaling electrification or the railroads. Rarely do such buildouts die prematurely. Most often, the overbuild is what drives declines. Eyeing the hyperscalers carefully, the need for more compute is clear, meaning we are still underbuilt. Tech requires careful observation for a tipping point, but as the data changes, so will positioning. Right now, the committee sees no reason to shift.
The committee decided to maintain a neutral stance regarding duration and curve positioning relative to the benchmark. Securitized allocation also remains neutral relative to the benchmark, while IG credit remains 90% relative. This makes the index’s main differentiator the 5% conviction position in convertible securities discussed above.
The details below reflect index positioning relative to the baseline benchmark effective August 2, 2026.
Relative Positioning
90% relative underweight
5% allocation to convertibles
Allocation
| Name | Market Value (%) |
|---|---|
| iShares MBS ETF | 25.78 |
| iShares 3-7 Year Treasury Bond ETF | 15.71 |
| Schwab Short-Term U.S. Treasury ETF | 13.05 |
| Schwab Long-Term U.S. Treasury ETF | 9.10 |
| Vanguard Short-Term Corporate Bond ETF | 7.75 |
| Vanguard Long-Term Corporate Bond ETF | 7.40 |
| Vanguard Intermediate-Term Corporate Bond ETF | 6.37 |
| iShares 7-10 Year Treasury Bond ETF | 5.04 |
| SPDR Bloomberg Convertible Securities ETF | 5.00 |
| iShares Agency Bond ETF | 2.25 |
| iShares BBB Rated Corporate Bond ETF | 2.00 |
| iShares 20+ Year Treasury Bond ETF | 0.55 |