A Strong Start for Smart Beta Bond ETFs

Many have looked into smart beta exchange traded funds to enhance returns and diminish risks in their equity market exposure, but smart beta bond ETFs are still finding their feet. Nevertheless, two fixed-income options have just recently celebrated a strong year.

The IQ S&P High Yield Low Volatility Bond ETF (NYSEArca: HYLV), IQ Enhanced Core Bond U.S. ETF (NYSEArca: AGGE) and IQ Enhanced Core Plus Bond U.S. ETF (NYSEArca: AGGP) recently passed their 1-year mark after launching on May 10, 2016.

AGGP in particular has been a standout over the past year, outperforming the widely observed Bloomberg Barclays US Aggregate Bond Index by over 200 basis points and the broader Intermediate-Term Bond Category by close to 90 basis points.

Investors have also been taken with the smart beta bond ETF strategies, funneling over $235 million into AGGP and a lesser $70 million into AGGE, making the two alternative index-based fixed-income ETFs among the most successful new launches over the past year.

“The emergence of factor-based or ‘strategic beta’ approaches in fixed income ETFs, after their tremendous growth in the equity category, has been one of the major stories in the ETF space over the past year, and IndexIQ has been leading the charge,” Sal Bruno, CIO of IndexIQ, said in a note.