Smart beta equity ETF strategies have quickly garnered a large following among investors seeking to diversify their stock portfolios and potentially enhance returns. Now, some are beginning to eye smart beta options for their fixed-income portfolios.
According to a recent survey of financial advisors and investment managers conducted by Columbia Threadneedle Investments, around 42% of investors are either already invested in strategic beta or smart beta fixed income ETFs or would explore purchasing one. Meanwhile, another 27% of participants indicated that they might consider purchasing a fixed-income strategic beta ETF.
“With considerations like diversification and total return, fixed income solutions in the form of strategic beta ETFs can be extremely attractive and the key for advisors will be in identifying options that follow a thoughtful benchmark and offer a unique mix of the right investments,” according to Columbia Threadneedle Investments.
When looking at a fixed-income strategic beta portfolio, participants pointed out that the track record and the firm’s expertise as an active fixed-income manager were among the top considerations cited when purchasing a product, at 20% each.
On the other hand, the least factor up for consideration was price, with just 9% of respondents indicating it influenced their decision to purchase the fixed-income strategic beta ETF.
Related: Thinking Different About U.S. Small-Cap ETFs
More investors may be looking into smart beta bond ETFs in a changing market environment, especially after a three-decade long bull rally in the fixed-income space and potential rising rate conditions ahead.
“Investors have traditionally used products that track the Bloomberg Barclays US Aggregate Bond Index as their core fixed-income allocation and, as we enter a new rate regime, investors may need to focus on the value of their investments and to meet their goals by avoiding overconcentration and minimizing interest rate risk,” according to Columbia Threadneedle Investments.
According to XTF data, there are 740 U.S.-listed enhanced or smart beta index-based ETFs with $625.3 billion in assets under management. However, there are only 35 smart beta fixed-income ETFs with $3.6 billion in assets, which leaves a lot of room for more growth.
For more information on alternative index-based strategies, visit our smart beta category.