A Smart Beta Muni ETF to Address the Shortcomings of Traditional Benchmarks

The market environment is not static and is always changing. Consequently, as fixed-income investors look to the municipal market category, one may consider a smart beta ETF strategy to tackle the munis segment.

“We ask advisors what their problems are – this helps us with our product development cycle – and one concern that they have when it comes to municipals is aligning yield with the client need,” Marc Zeitoun, Head of Strategic Beta & head of Private Client Advisory for Columbia Threadneedle, said at the Charles Schwab IMPACT 2018 conference. “Right now, I think the muni market is very confusing for the average investor. It use to be a very conservative asset class – everything was triple-A insured – and since the financial crisis, things have changed and you really need to go out and find yield in different places.”

Zeitoun pointed to the recently launched Columbia Multi-Sector Municipal Income ETF (NYSEArca: MUST) as a way for investors 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.