In May of 2018 we produced the following example.
The table illustrates a hypothetical backtest of index data to demonstrate the effect of allocating 50% of a bond ladder to the 7HANDL Index to blend up distributions.

As shown in the table, a 50% allocation to the 7HANDL increased distributions by 142% and annualized returns by 143%, yet only increased volatility by 48% over the period of Jan 2013-April 2018.

June 19, 2019

Blend↑Update

Blending Up a Bond Ladder

In May 2018 we wrote:

Bond Ladders are a staple in client portfolios.

Many financial advisors use bond ladders to meet client cash flow needs and reduce the reinvestment risk associated with rolling over maturing bonds. While a bond ladder can help ensure a steady stream of cash flows throughout the year, low yields on government and investment grade corporate debt unfortunately results in an anemic distribution.

The Nasdaq 7HANDL™ Index was created as a tool for Advisors.

Using HANDLS Indexes, you control the level of distribution just by changing the allocation.

Review

Using index data we can review last year’s hypothesis and see how the blended-up ladder index performed over the period July 2018 through May 2019[1]. Over the most recent 11-month period the 7-year Investment Grade Ladder outperformed the 7-year High yield Ladder. (Data is not annualized).

By blending the Investment Grade and High Yield Ladder 50/50 the distributions increased by 108 bps over the investment grade, while decreasing by 108 bps from the High Yield.

By blending the ladder portfolio with the Nasdaq 7HANDL Index, the estimated distributions can be substantially increased and the total return is increased relative to either of the ladder indexes.

As shown above, a 50% allocation to the 7HANDL increased distributions by 75% for the investment grade ladder and 18% for the high-yield ladder while increasing total return by 12 bps over investment grade and 83bps over the high yield ladder. It should be noted that the performance improvement was not as good (particularly with respect to volatility) as the prior backtest, however, keep in mind in this update, the time period was only 11 months.

Powered by Nasdaq Dorsey Wright

The Nasdaq 7HANDL™ Index is the 7% Income Index. The 7HANDL™ Index consists of a well-diversified, multi-asset portfolio of 19 low-cost ETFs and seeks to offer the potential for high monthly distributions while maintaining a stable net asset value over time. The index is unique in that it is designed to support a 7.0% annual distribution rate in an effort to maintain a steady distribution.

The index provider publishes a net version which incorporates a monthly distribution equal to 1/12^th of 7% per month under the ticker symbol NA7HANDLTLE. Because the distribution methodology is transparent and predictable, Financial Advisors can incorporate this information into their planning and target a needed distribution with any kind of strategy.

[1] Data availability for the Nasdaq BulletShares 7-Year Investment Grade Index index and High Yield Index was only publicly available for 1 year (mid-June 2018 – mid June 2019), therefore using monthly data only July through May could be calculated. The results presented are not annualized.

Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. HANDLS™ and 7HANDL™ are trademarks of Bryant Avenue Ventures LLC.
ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
HANDLS Indexes receives compensation in connection with licensing its indices to third parties. Any returns or performance provided within are for illustrative purposes only and do not demonstrate actual performance. Past performance is not a guarantee of future investment results.
It is not possible to invest directly in an index. Exposure to an asset class is available through investable instruments based on an index. HANDLS Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other vehicle that is offered by third parties and that seeks to provide an investment return based on the returns of any index. There is no assurance that investment products based on an index will accurately track index performance or provide positive investment returns. HANDLS Indexes is not an investment advisor, and HANDLS Indexes makes no representation regarding the advisability of investing in any such investment fund or other vehicle. A decision to invest in any such investment fund or other vehicle should not be made in reliance on any of the statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by HANDLS Indexes to buy, sell, or hold such security, nor is it considered to be investment advice.
The information contained herein is intended for personal use only and should not be relied upon as the basis for the execution of a security trade. Investors are advised to consult with their broker or other financial representative to verify pricing information for any securities referenced herein. Neither HANDLS Indexes nor any of its direct or indirect third-party data suppliers or their affiliates shall have any liability for the accuracy or completeness of the information contained herein, nor for any lost profits, indirect, special or consequential damages. Either HANDLS Indexes or its direct or indirect third-party data suppliers or their affiliates have exclusive proprietary rights in any information contained herein. The information contained herein may not be used for any unauthorized purpose or redistributed without prior written approval from HANDLS Indexes.Copyright © 2019 by HANDLS Indexes. All rights reserved.

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