Smart Beta ETFs Eyeing Slice of Municipal Bond Market Pie

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.

In terms of the Columbia Multi-Sector Municipal Income ETF, the fund would target debt market factors exclusive to the bond markets like duration, yield, quality, maturity, liquidity, and sensitivity to interest rates. By adhering to a rules-based strategy, the ETF could ferret out bonds that are not ripe for investment.

The ETF will corner various areas of the municipal bond market, such as investment-grade debt issues in revenue bonds, health care, general-obligation bonds, and high-yield debt. It remains to be seen whether this smart beta approach will catch on with other firms looking to offer ETF products in this space, but market experts do see this as a revolutionary step forward in the municipal bond market.

“It’s evolutionary that we see this happening in the muni bond ETF space,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA Research.

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