The objective of this model is to generate an interest yield in the 2-3% range while keeping the weighted average duration below 3. The model seeks to remain 100% invested in Fixed Income ETFs with a bias to taking credit risk vs. duration risk. Moreover, the model targets a global footprint and when appropriate, will target international and emerging market bond ETFs. The weighted average credit risk profile of the model is investment grade.


Short Duration Fixed Income model Core-Satellite Implementation

A Core and Satellite approach has been used to build this model, with the Core including low cost, market capitalization weighted domestic fixed income ETFs like GNMA, FLOT, and SHV. The Satellite includes ETFs that track alternative indices, attempting to add alpha over the Core indices. Examples include local currency emerging market sovereign bonds, global high yield bonds, international corporate bonds, senior bank loans, shorter term domestic high yield bonds, etc.


Short Duration Fixed Income Model Duration vs. Yield (10/17/2022)

Duration vs. Yield Tradeoff (10/17/2022) Model ETF Proxy: ISTB
Avg. Effective Duration 2.2 2.8
Yield to Maturity 5.6% 3.7%
Index: Bloomberg US Universal 1-5 Year Index

Short Duration Fixed Income Model Cost Summary

  • This compares very favorably to the Morningstar Category Average of Short Term U.S. Bond Mutual Funds of 0.65% (Source: Morningstar Direct)
  • This is a reduction of 47% when compared to active money manager costs
  • This is particularly important in light of the fact that over the last five years ending Dec’18, only 45% of Investment Grade Short-Term Mutual Funds beat their benchmarks (per SPIVA Scorecard, Year End 2018)


*As of 10/17/2022.  The Model Weighted Average Net Expense Ratio applies only to the portion of the model that is comprised of mutual funds and/or ETFs. It reflects expense waivers or reimbursements from the fund companies, which may not be permanent. The data used to calculate the Model Weighted Average Net Expense Ratio is obtained from a third-party data provider and is believed to be accurate, but has not been verified by Envestnet. The Model Weighted Average Net Expense Ratio will only be shown if fund expense ratios are available on all mutual funds and ETFs used in the model.