February 2024 Index Positioning

Index Updates  •  Positioning Update  •  January 29, 2024

The Index strategy is based on qualitative and quantitative inputs including economic data and interpretations of government policy. Asset allocation guardrails include 50% – 200% allocation relative to the benchmark for credit, duration, and structure/mortgage weight. A high conviction exposure to more speculative or diversifying positions is constrained to 0% – 20%.

The characteristics below reflect how we would best position a portfolio of fixed-income ETFs to achieve maximum total return over a comparable baseline neutral portfolio of fixed-income securities (benchmark).

  Relative Positioning  



90% Duration


Yield Curve



Corporate Credit




Underweight MBS



20% 0-5 US TIPS


90% Duration

The index is underweight duration, based on the belief rates could head higher.

The 10-year yield was recently at a 16-year high. While yields have fallen since October, we do not believe this trend is over.


Neutral Curve Position

The Index holds no curve position relative to the benchmark.



90% Underweight Credit

The index has a 90% allocation to corporates relative to the benchmark. In other words, the index holds an underweight allocation to corporate credit.
The chart shows investment-grade corporate spreads (blue) and the S&P 500 (orange) move in tandem. Relative credit performance moves with equity prices.

With stocks at all-time highs, and record corporate bond issuance in January, we are reducing our credit exposure from 100% to 90% as we see increased risks.


80% Underweight Securitized

All mortgages have an embedded option because holders can pre-pay their mortgage anytime. Because of this structure, the option-adjusted spread (OAS) of mortgages (blue line) and the MOVE Index (red line), which measures the implied volatility of 30-day interest rate options, have a tight relationship.

Given the uncertainty surrounding inflation, Fed policy, and the belief that rates will move higher, look for the yield curve to bear steepen. This can “un-invert” the yield curve in the coming months, and provide a tailwind to mortgage relative performance.

We remain underweight at 80% relative, up from 72% last month.

20% TIPS Conviction Allocation

The index holds a 20% allocation to 0-5 year TIPS as inflation protection.

The index owns short-maturity inflation securities (TIPS). The 2-year inflation break-even rate has held between 200 and 230bps. The committee anticipates inflation to exceed this level over the next two years. Short-maturity inflation protection is attractive, especially if inflation remains sticky and persistent.


Allocation Changes

NameFebruary 2024January 2024
iShares MBS ETF23.3021.00
iShares 0-5 Year TIPS Bond ETF20.0020.00
Vanguard Long-Term Corporate Bond ETF8.149.00
WisdomTree Floating Rate Treasury ETF8.008.00
Vanguard Short-Term Corporate Bond ETF7.248.00
Schwab Long-Term U.S. Treasury ETF7.007.00
Vanguard Intermediate-Term Corporate Bond ETF6.417.09
Schwab Short-Term U.S. Treasury ETF5.915.91
iShares 7-10 Year Treasury Bond ETF5.505.50
iShares BBB Rated Corporate Bond ETF5.005.00
iShares 3-7 Year Treasury Bond ETF3.503.50