Sourcing income and managing potential income volatility in this new rate regime presents unprecedented challenges for investors.
On the upcoming webcast, Targeting Income in the New Rate Regime, Edward Kerschner, Chief Portfolio Strategist, Columbia Threadneedle Investments; Katherine Nuss, Director, Fixed-Income Product Management, Columbia Threadneedle Investments; Joe Mallen, Chief Investment Officer, Helios Quantitative Research; and Jay McAndrew, National Sales Manager, Strategic Beta, Columbia Threadneedle Investments, will dissect risks found in traditional market cap-weighted bond funds and outline an alternative methodology that could help financial advisors better mitigate potential risks ahead.
For example, the Columbia Diversified Fixed Income Allocation ETF (NYSEArca: DIAL) follows an alternative indexing methodology to potentially help bond investors garner improved returns and potentially diminish the negative effects of sudden swings.
DIAL is the top performer across 354 open-end mutual funds and ETFs in the Morningstar category US Multisector Bonds.
“DIAL is a cost-efficient, broadly diversified, multi-sector ETF. DIAL offers advisors a way to potentially generate income and manage volatility across all markets. Informed by our expertise as a fixed-income manager, DIAL may help deliver a better balance of yield than traditional benchmark approaches,” according to Columbia Threadneedle.
The 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.
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%). Each sector is market value-weighted except for the global ex-U.S. Treasury Securities, which is equally weighted.
The treasuries exposure has a remaining maturity of greater than seven years, are rated investment-grade and U.S. denominated.
Global ex-U.S. Treasury exposure 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.
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.
Financial advisors who are interested in learning more about income strategies can register for the Tuesday, August 13 webcast here.