USAA launched a new fixed-income fund focused on providing exposure to the aggregate bond market.

USAA Core Intermediate-Term Bond ETF UITB tracks the Bloomberg Barclays US Aggregate Bond Index and holds a portfolio of bonds that primarily target the intermediate end of the yield curve.

Fund Characteristics

The fund’s index seeks to measure the performance of intermediate term bonds in the total bond market. It has AUM of $25.1 million and has a moderate expense ratio of 40 basis points a year. It holds 35 bonds in its portfolio. The fund bears high concentration risk as more than 58% is allocated to the top 10 holdings.

From a sector look, Corporate, Treasury and Mortgage Backed are the top three allocations of this fund, with 53.0%, 26.0% and 14.0% exposure, respectively.

From a credit-rating perspective, the fund has 31.0% exposure to BBB rated bonds, 26.0% to AAA rated bonds, 18.0% to BB rated bonds, 4.0% each to B and A rated bonds, 2.0% each to AA rated bonds and cash while 12% is allocated to unrated bonds. Therefore, due to its high exposure to investment-grade securities, the fund bears comparatively less default risk. However, it’s exposure to junk bonds exposes the fund to some default risk.

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Competition

The fund faces a lot of competition from other intermediate term funds in the space. Below we discuss a few ETFs that seek to provide exposure to the space (see all Total Bond Market ETFs here).

Vanguard Total Bond Market ETF BND

This fund has AUM of $36.4 billion and seeks to provide exposure to investment-grade total bond market. It charges 5 basis points in fee per year and holds 8248 bonds in its portfolio. From a sector look, Treasury, Government Mortgage Backed and Industrial are the top three allocations of this fund, with 42.4%, 21.4% and 17.4% exposure, respectively (as of Sep 30, 2017). The fund targets the intermediate to long end of the yield curve as it has an average effective maturity of 8.3 years and an average duration of 6.1 years. The fund has returned 1.3% year to date but has lost 1.6% in a year (as of Nov 8, 2017).

iShares Core U.S. Aggregate Bond ETF AGG

This fund has AUM of $51.4 billion and seeks to provide exposure to investment-grade total bond market. It charges 5 basis points in fee per year and holds 6455 bonds in its portfolio. From a sector look, Treasury, Mortgage Pass Through and Industrial are the top three allocations of this fund, with 37.9%, 27.7% and 15.9% exposure, respectively (as of Nov 7, 2017). The fund targets the intermediate to long end of the yield curve as it has a weighted average effective maturity of 8.06 years and an average duration of 5.73 years. The fund has returned 1.3% year to date but has lost 1.6% in a year (as of Nov 8, 2017).

Schwab U.S. Aggregate Bond ETF SCHZ

This fund has AUM of $4.4 billion and seeks to provide exposure to investment-grade total bond market. It charges 4 basis points in fee per year and holds 3436 bonds in its portfolio. From a sector look, Treasury, Mortgage Pass Through and US Corporate are the top three allocations of this fund, with 37.5%, 28.1% and 22.6% exposure, respectively (as of Nov 7, 2017). The fund targets the intermediate end of the yield curve as it has a weighted average maturity of 8.03 years and effective duration of 5.81 years. The fund has returned 1.5% year to date but has lost 1.5% in a year (as of Nov 8, 2017).