Columbia Threadneedle Investments has expanded its strategic beta exchange-traded fund (ETF) offerings, with the launch of Columbia Diversified Fixed Income Allocation ETF (DIAL).
DIAL will track the Beta Advantage® Multi-Sector Bond Index, which provides a rules-based approach to investing in six fixed income sectors. Columbia Threadneedle drew upon its expertise as a leading, fixed income manager to create the strategic beta rules that are the foundation of the index. The index is owned and calculated by Bloomberg Index Services Limited.
An all-in-one approach to fixed income investing, DIAL provides investors with a diversified portfolio of fixed income securities across six sectors that is designed to serve as a core fixed income allocation, creating a multi-sector bond strategy focused on balancing yield, quality and liquidity. These sectors include US Treasuries, global treasuries ex-US, US investment-grade corporate bonds, U mortgage-backed securities, US high-yield corporate bonds and emerging market sovereign debt. DIAL’s rules-based investment approach aims to address investor concerns of having consistent income with downside protection, regardless of the interest rate environment.
“As the market enters a new rate regime, investors may need to adjust their fixed income allocations and broaden their opportunity set. Unlike traditional ETFs, strategic beta ETFs do more than track a benchmark,” says Gene Tannuzzo, CFA, senior portfolio manager at Columbia Threadneedle Investments. “They incorporate active insights and are outcome-oriented.”
The traditional benchmark fixed income index does not foster diversification, with an outsized weighting to sovereign bonds and high correlation between its two largest sectors, US Treasuries and US mortgage-backed securities.
“DIAL’s disciplined process is designed to seek more sources of income and avoid the overconcentration found in traditional fixed income benchmarks,” says Marc Zeitoun, CFA, head of strategic beta at Columbia Threadneedle Investments. “Few strategic beta fixed income ETFs on the market today effectively address clients’ fixed income needs around yield, quality and liquidity in a thoughtful way.”
While the strategic beta fixed income ETF market is in the early stages of adoption, according to a recent Columbia Threadneedle Investments survey of financial advisors and investment managers, over half would consider investing in a strategic beta fixed income ETF. Respondents ranked expertise as an active fixed income manager and track record as the top considerations (both 20 percent) when purchasing a fixed income strategic beta product.
The survey was conducted online during the month of June 2017 among 220 financial advisors and investment professionals. More than 49 percent of survey participants manage more than $100 million in assets.