Columbia’s use of smart beta with MUST includes multi-factor investments that help combine uncorrelated investment styles to smooth out volatility. Since there are multiple uncorrelated factors at play, it helps guarantee that at least one factor will help support the portfolio during times of distress.
Moreover, a multi-factor ETF removes the need for investors to babysit a portfolio and switch between factors in an attempt to time market moves.
“Even though most investors’ current exposure to municipals is through actively managed portfolios or individual bonds, we’ve seen a growing interest in passive products in the municipal space,” said Marc Zeitoun, CFA, head of strategic beta at Columbia Threadneedle Investments. “Given the limitations of existing municipal bond benchmarks, we opted to draw upon our expertise in managing active municipal bond portfolios to build an innovative, strategic beta fund that leverages our best thinking, but in a cost-effective, risk-managed way.”
Treasury Yields Higher Across the Board
Treasury note yields got much of the blame for last week’s stock sell-off as benchmark notes went on a weeklong ascent in the week prior, pushing to new highs that caused investors to fret. Today, yields continued to climb, but didn’t affect the markets negatively as the Dow Jones Industrial Average was up over 100 points as of 1:45 p.m. ET.
The benchmark 10-year note went to 3.192, while the 30-year note was at 3.344. Short-duration yields were up as well with the 2-year note rising to 2.895 and the 5-year note heading up to 3.043.
As rates rise and bond prices fall, investors can use fixed-income ETFs like the Xtrackers Hi Yld Cor Bd Intst Rt Hdg ETF (BATS: HYIH) or the WisdomTree Interest Rt Hdg Hi Yld Bd ETF (NasdaqGM: HYZD).
HYIH seeks investment results that correspond generally to the performance of the Solactive High Yield Corporate Bond-Interest Rate Hedged Index–more high yield to appease Axelrod’s appetite for risk. HYIH will invest at least 80% of its total assets in instruments that comprise the underlying index, such as long positions in U.S. dollar-denominated high yield corporate bonds and shorts in U.S. Treasury notes or bonds of approximate equivalent duration to the high yield bonds.
HYZD seeks to track the price and yield performance of the BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained, Zero Duration Index, which provides long exposure to the BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained Index while seeking to manage interest rate risk through the use of short positions in U.S. Treasury securities. The majority of the fund’s total assets will be invested in the component securities of the index and investments that have economic characteristics that are similar in nature.
For more trends in fixed income, visit the Fixed Income Channel.