Unconstrained funds, as the name implies, break this shackle and provide the flexibility that may be required to operate across different market conditions. A world that is characterized by diverging central bank policies, uncontrollable government debt from Greece to Puerto Rico and massive stock market volatility, unconstrained strategy may appeal to investors that are looking to adjust portfolios quickly amid a fast changing global environment.
WisdomTree, the third largest US provider of actively-managed exchange-traded funds, collaborated with California based Western Asset Management Company to launch the industry’s first unconstrained bond ETF recently.
The WisdomTree Western Asset Unconstrained Bond Fund (UBND) is essentially a “go any-where” bond fund and is managed by Mark Lindbloom, the recipient of the 2014 Morningstar Fixed-Income Fund Manager of The Year award.
By design, an unconstrained fund is actively managed, meaning it is not wedded to any benchmark or index. UBND allocates capital based on the portfolio manager’s assessment of value, which is different from traditional market-capitalization weighted indexes that mostly reflect supply by issuers.
It’s worthwhile to note unconstrained strategies do not involve undisciplined investment practices; rather a focus on risks is essential for the successful implementation of these strategies.
The new fund’s annual volatility target ranges between two and three percent.
The new fund limits its exposure to 10 percent for single corporate issuers while allocation to any single country, excluding the US, is generally limited to 30 percent. Also, the fund can invest up-to 25 percent of its portfolio in credit-linked notes and acquire non-investment grade debt (junk bonds) to enhance returns.
UBND can go short on overvalued securities and targets an average effective duration between minus five years and 10 years.
UBND has an annual expense ratio of 55 basis points.
Disclosure: No holdings
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