June 30, 2025
Connie Christian, CFA
Manager, Fixed Income
Myles Smith
Investment Analyst
This week, we’re transitioning the benchmark for two of our fixed income funds—the Fixed Income Fund (FIF) and the Social Values Choice Bond (SVCBF)—to the Bloomberg U.S. Aggregate Index. This change aims to align the benchmark with industry standards and best practices, all while enhancing accountability and transparency within our investment funds (and without changing the funds’ investment strategies, but more on that later!).
Below, we share a few thoughts on this change and its implications for Wespath investors.
The benchmark of a fixed income fund—or any investment fund or strategy, for that matter—is crucial for clients to understand because it serves as a reference point to measure performance and understand the risk-return profile of their investments.
In short, benchmarks are one of the tools clients can use to keep us accountable. In actively managed funds like FIF and SVCBF, we’re seeking to outperform the benchmark index over the long-term. Thus, the benchmark is an important guidepost for measuring our success over time.
The shift to the U.S. Aggregate Index is intended to align with best practices and market standards, providing a more standardized comparison for evaluating our performance.
The U.S. Aggregate Index is a widely adopted benchmark which has been a leading standard for fixed income investors since it launched in the 1970s. In a recent search of investment database eVestment, we found that the U.S. Aggregate Index was used by all but six of the 151 actively managed, core-plus fixed income strategies. While the funds’ previous benchmark, the Bloomberg U.S. Universal (ex-mortgage-backed securities) Index, remains a reasonable performance yardstick, it is not as well recognized or understood by the investing community.
Importantly, the benchmark change does not alter the underlying investment strategies of FIF and SVCBF. The funds will continue to be managed how they have been previously, with the benchmark change focused more on transparency and accountability, as we’ve mentioned.
That said, we will likely see some changes to how the funds’ characteristics compare to the benchmark. For example, we expect FIF’s and SVCBF’s tracking error to increase. Tracking error is a measure used in investing to quantify how closely a portfolio follows the performance of a benchmark index. A low tracking error indicates a portfolio closely follows the benchmark, while a higher tracking error indicates more deviation from the benchmark.
There are some key areas—which we’ll describe in greater detail below—where FIF and SVCBF deviate from the U.S. Aggregate Index, which helps explain the tracking error difference.
But that doesn’t mean the funds are getting riskier; since we’re not changing the underlying strategies within the funds, the underlying fixed income-specific risks—like interest rate risk and default risk—aren’t changing. Rather, we believe the new benchmark will better highlight whether we’re being rewarded with higher returns for deviating from the benchmark. And as is becoming an important theme, that means it will also be easier for Wespath’s investors to measure our success in that regard, too.
To dig further into benchmark deviation, let’s consider the role of core and core plus strategies. These are important terms in the world of fixed income investing, as they are both common approaches used by investors to structure bond portfolios.
Core strategies typically comprise liquid, high-quality bonds like U.S. Treasuries, U.S. agency bonds (e.g., Fannie Mae and Freddie Mac), high-quality corporate bonds and mortgage-backed securities. Core plus strategies usually include all those same securities, as well as a broader range of fixed income assets such as high-yield bonds, emerging market debt, bank loans and more. While core plus strategies tend to introduce additional credit risk, they seek to enhance long-term returns on a risk-adjusted basis and can play a value-adding role in a diversified portfolio.
The U.S. Aggregate Index broadly tracks core strategies. But our actively managed fixed income funds also include core plus strategies. Therefore, comparing our funds’ performance to the U.S. Aggregate Index makes it simpler to analyze whether we’ve been successful in enhancing long-term returns by incorporating core plus strategies.
We’re excited to roll out this new benchmark and improve the transparency and accountability of our investment strategies. While it may seem like a subtle change, we believe it is consistent with our focus on enhancing our investment funds and providing top-notch client experiences. And while we may not be changing the underlying strategies of the funds right now, our disciplined long-term approach provides room to be flexible and responsive to how market conditions evolve over time.
We have updated our website with a new look and made it simple to navigate on any device.
We will continue to add more valuable information and features. Please let us know how we are doing.
P.S. For plan sponsors and plan participants, we have a new look for you too. Check out the Wespath Benefits and Investments website.
