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.
Global ex-U.S. Treasury exposure will have a remaining maturity of between and including seven to 12 years and a yield of greater than 0% issued by Australia, Canada, France, Germany, Italy, Japan, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom.
The U.S. agency mortgage-backed securities component is comprised of U.S. agency mortgage pass-through securities backed by pools of mortgages and issued by Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) that have a 30-year fixed-rate program, an issuance date less than 1,000 days, and that are denominated in U.S. dollars.
The U.S. corporate investment-grade exposure is made up of investment grade, fixed-rate, taxable, U.S. dollar denominated debt with $250 million or more of par amount outstanding, issued by U.S. and non-U.S. industrial companies, utilities, and financial institutions that have a remaining maturity of between and including 5 to 15 years, a credit rating between and including BAA1 and BAA3.
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The U.S. corporate high-yield debt component includes non-investment grade, fixed-rate, taxable corporate bonds that have a credit rating above B3 using the Bloomberg index rating methodology, an outstanding face amount greater than $800 million, remaining maturity of less than 14 years, and issued within the past 5 years.
Lastly, the emerging markets sovereign and quasi-sovereign debt sector includes fixed-rate sovereign and quasi-sovereign debt of emerging market countries rated investment grade and non-investment grade that have a credit rating between and including BAA1 and BA3 rating and remaining maturity of between and including 5 to 15 years.
For more information on new fund products, visit our new ETFs category.