A Diversified, All-In-One Smart Beta Bond ETF Pick

Columbia Threadneedle launched a diversified smart beta bond ETF, helping investors garner broad exposure to six different types of debt asset categories in a single investment vehicle as a way to better diversify a fixed-income portfolio.

Columbia Threadneedle has added the Columbia Diversified Fixed Income Allocation ETF (NYSEArca: DIAL), which comes with a 0.28% expense ratio.

The new 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.

“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,” Gene Tannuzzo, CFA, senior portfolio manager at Columbia Threadneedle Investments, said in a note. “They incorporate active insights and are outcome-oriented.”

The underlying index tries to target the 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%), according to a prospectus sheet. Each sector is market value-weighted except for the global ex-U.S. Treasury Securities, which is equally weighted.

“DIAL’s disciplined process is designed to seek more sources of income and avoid the overconcentration found in traditional fixed income benchmarks,” Marc Zeitoun, CFA, head of strategic beta at Columbia Threadneedle Investments, said in a note. “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.”

The Treasuries exposure will have a remaining maturity of greater than seven years, are rated investment-grade and U.S. denominated.