Watch Your Duration..Update

I wrote a little more than a month ago about the impact of duration on the traditional 60/40 stock bond allocation which often includes a total bond index like ETF BND as its bond allocation. With its 7 year duration it has a high price sensitivity to rising interest rates.

Alternatives to shorten the duration would include the Vanguard short term blend ETF(government and corporate bonds symbol BSV) or the ishares floating rate note ETF (ticker Flot)

Year to date returns might give a picture of how a 60/40 portfolio will perform with rising rates. All charts below compare the portfolios to 100% S+P 500

Returns YTD :

60/40 S+P 500/BND:+.3%

100% S+P 500 (blue) 60% BND 40% S+P 500 (green)

60/40 S+P 500/BSV  +1.0%:

100% S+P 500 (Blue) 60% S+P 500/40% BSV (Green)

60/40 S+P 500/FLOT  + 1.5%:

100% S+P 500 (blue) 60% S+P 500/40% FLOT (Green)

Apparently market participants have been making adjustments. Here is data for FLRN the State Street (SPDR) floating rate ETF which has $2.3 bln under management compared to the Ishares equivalent FLOT whch has $7.6 bln in assets