Nevertheless, some ETF providers have already launched smart beta bond strategies. For instance, Invesco provides U.S. corporate bond ETFs that weight components by an issuer’s cash flow, sales, book value and dividends. The $1.1 billion PowerShares Fundamental High Yield Corporate Bond ETF (NYSEArca: PHB), which tracks the RAFI Bonds US High Yield 1-10 Index, focuses on slightly higher quality corporate debt securities than its major competitors.
Paul Syms, head of fixed income product management, Emea, at Invesco PowerShares, argued that there is “a real thirst” among investors to understand such strategies. Over half of investors who do not currently use smart beta would consider applying its techniques to equity investment. But investor interest in applying smart beta to fixed income ranges from 24% for sovereign debt to 45% for corporate bonds.
“Fixed income smart beta is the investment frontier that matters most to clients and we are seeing more strategies under construction. Clients are even willing to trade yield [and accept lower levels of income]if these strategies can help them to control risks in a rising rate environment,” Hamid added.
For more information on the fixed-income market, visit our bond ETFs category.