WisdomTree Yield Enhanced U.S. Aggregate Bond ETF prioritizes yield, a strategy that brings risk and sometimes handsome rewards. Constraints hold the fund closer to the broad market but can force it to buy high and sell low, resulting in a Morningstar Analyst Rating of Neutral.

The Bloomberg Barclays US Aggregate Enhanced Yield Index, which underpins this fund, aims to squeeze out more yield than the Bloomberg US Aggregate Bond Index, while taking similar risk. This index segments the investment-grade bond market into 20 buckets based on their sector, maturity, and credit quality. An optimizer bends toward the highest-yielding, subject to constraints that tether the fund’s tracking error, duration, turnover, and subcomponent allocation to the category index.

While the constraints aim to preserve the risk profile of the broad bond market, this fund normally shoulders more credit risk, making it a volatile proposition. Nearly 30% of the portfolio comprised BBB rated bonds as of October 2023, more than double the Bloomberg U.S. Aggregate Bond Index, the Morningstar Category index. The shape of the yield curve tends to determine the portfolio’s duration. For instance, it was 0.3 years shorter than the category index as of October 2023 because short-term bonds offered better yield than long. Constraints keep duration within one year of the Bloomberg Aggregated Bond Index, though, so interest-rate fluctuations shouldn’t influence its index-relative performance too much.

The fund’s constraints keep it on the rails but can force this fund to trade at unfavorable prices when credit spreads change quickly. After the pandemic-fueled selloff in early 2020, the fund trimmed its BBB bond sleeve to 20% of the portfolio as credit spreads widened. That ill-timed retreat caused the fund to bear the full brunt of the downturn but miss out on much of the subsequent rebound in 2020.

That year wasn’t the only rough one for this fund. Its bold exposures can spark feast-or-famine category-relative performance. Over the past six calendar years, it finished in the intermediate-core peer group’s top quintile twice (2017 and 2019) and in the bottom quintile three times (2018, 2020, and 2022).

Analyst Rating

Drums up yield with credit risk.

Analyst

Ryan Jackson

This fund has shown it can thrive in calm markets, but it has fared badly in rockier ones, and its constraints can force fire sales at unfavorable times. It retains an Average Process Pillar rating.

Average

Process

The BNY portfolio management team that subadvises this fund is an experienced group that uses leading technology platforms like Charles River and BSKT portfolio management tools. However, the team isn’t as well-endowed as industry leaders and, ultimately, it doesn't stand out. The fund earns an Average People Pillar rating.

David Nieman, Nancy Rogers, and Gregg Lee are the named portfolio managers on this fund. They were named to the fund over three consecutive months from November 2020 through January 2021. Prior to this trio’s start, Paul Benson and Stephanie Shu helmed the fund. The change was made following the consolidation of resources between BNY Mellon and three of its subsidiaries, Insight Investment, Newton Investment Management North America, and Dreyfus Cash Investment Strategies.

The change did not affect BNY Mellon’s processes nor diminish our confidence in the team’s abilities because portfolio management is a team-oriented process at Mellon. The managers are supported by a trading desk that includes nine traders focused exclusively on fixed-income markets. The team’s success is measured by low tracking error, and it has delivered on this front.

People

WisdomTree is improving, but its shaky global fund lineup and uncertain trajectory hold its rating to Below Average. 

WisdomTree’s research organization has long been a strength. Under CIO Jeremy Schwartz, the team has generated creative, economically sound ideas and evolved them into investable products, like the efficient core series. A recent focus on investor education spawned the Portfolio Analysis Tools Hub, an online platform that taps the team’s brainpower to help investors make better investment decisions.

The firm’s product lineup is a mixed bag. To complement its core lineup of fundamentally weighted strategies, WisdomTree has recently launched funds targeting established factors instead of trendy themes—an encouraging reorientation. Yet the shutdown of WisdomTree U.S. Growth and Momentum ETF calls WisdomTree’s commitment to these funds into question, and vestiges from its laxer product-development era look ripe for closure. Its European lineup features risky trading tools that are hard for investors to use well. 

WisdomTree’s future may hinge on WisdomTree Prime, its blockchain-based digital wallet. The launch reflects founder and CEO Jonathan Steinberg’s conviction in the disruptive potential of the blockchain. Prime shouldn’t hurt WisdomTree fund investors (most funds on the platform are zero-fee), but it may distract the firm from shoring up its core offering.

Below Average

Parent

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