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Courtiers: how we mitigate volatility
by Emma Dunkley on Feb 15, 2013 at 07:45
We only have a small amount of exposure to fixed-income ETFs alongside our active holdings. We have a short duration iShares Markit iBoxx Sterling Corporate Bond 1-5 year ETF and an iShares Markit iBoxx Euro High Yield Bond product. We’ve been happy with an asset allocation play.
We’re looking to shift our portfolio to shorter duration, because of concerns about interest rate risk, so this will hedge it out a little more. In the funds, we can also go short gilt futures.
Have you made any changes to your ETF due diligence?
We’ll be factoring the execution of trades into our due diligence now – we’re trying to work on more efficient execution.
Some brokers don’t take commission on trades, but they take a spread. But if a broker takes a 10-20 basis points commission, this is big if you’re only trying to track an index. It means you’ve really reduced your ability to track that index.
Tracking error can also be a real issue. However, if you look at the data the groups produce, it’s all over the place. There needs to be more alignment with the data produced in the market.
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