Broad benchmarks, such as the Bloomberg U.S. Aggregate Bond Index (the “Agg”) and the Russell 1000 Index, have helped guide investors through a prolonged bull market. However, as the Federal Reserve eyes multiple interest rate hikes this year, funds tracking the “Agg” now expose investors to more risks and limited returns, and finding the right opportunities in equity doesn’t appear any easier.
In the upcoming webcast, Changes are Coming in 2022. Don’t Stick with Bad Benchmarks, Jay McAndrew, vice president, national sales manager, Columbia Threadneedle Investments; Marc Zeitoun, head of strategic beta and private client advisory, Columbia Threadneedle Investments; and Suzanne Siracuse, CEO of Suzanne Siracuse Consulting and host of the Big Reveal podcast, will take a closer look at the shortcomings of traditional benchmarks in today’s shifting environment and focus on alternative equity and fixed income strategies that can help financial advisors better adapt their clients’ portfolios for the challenges of tomorrow.
For example, the Columbia Diversified Fixed Income Allocation ETF (NYSEArca: DIAL) follows an alternative indexing methodology to potentially help bond investors garner improved returns and potentially diminish the negative effects of sudden swings. The bond ETF tries to reflect the performance of the Beta Advantage Multi-Sector Bond Index, a rules-based multi-sector strategic approach to debt market investing. The underlying smart beta index covers six sectors of the debt market, focusing on yield, quality, and liquidity.
The underlying index tries to target six sectors, including U.S. Treasury securities (10%), global ex-U.S. Treasury securities (10%), U.S. agency mortgage-backed securities (15%), U.S. corporate investment-grade bonds (15%), U.S. corporate high-yield bonds (30%), and emerging markets sovereign and quasi-sovereign debt (20%). Each sector is market value-weighted except for the global ex-U.S. Treasury Securities sector, which is equally weighted.
The Columbia Short Duration Bond ETF (SBND) tracks the Beta Advantage Short Term Bond Index, providing convenient, diversified access to four sectors, managed by senior fixed income portfolio managers at a competitive price. The thoughtfully constructed, diversified portfolio can mitigate duration risk while capturing higher current income opportunities. In order to maximize the potential for risk-adjusted returns and income, the underlying Beta Advantage Multi-Sector Municipal Bond Index is designed to exploit inefficiencies inherent in traditional passive approaches.
The Columbia Multi-Sector Municipal Income ETF (NYSEArca: MUST) is also another way for investors to broaden their opportunity set and gain exposure to a more effective tool to implement a passive muni solution. MUST could help complement a traditional approach to municipal bond investing and improve investor outcomes. The smart beta methodology leans toward potential opportunity as opposed to traditional market cap-weighting or indebtedness. As a result, the portfolio takes a more active approach to enhance yield and generate improved risk-adjusted returns over conventional municipal benchmarks while following a passive, rules-based indexing methodology.
Financial advisors who are interested in learning more about alternative, rules-based investment strategies can register for the Thursday, March 3 webcast here.