Smart beta ETFs help investors gain exposure to time-tested, outperforming factor-based investment styles that many money managers have utilized over the years.
“Columbia Threadneedle has done a such a great job of analyzing and reviewing the drivers of performance of all of its strong funds and that gives us a factor library for us to work with,” Marc Zeitoun, Head of Strategic Beta for Columbia Threadneedle, said at the recent Morningstar ETF Conference.
For example, Columbia Threadneedle offers a line of dividend-themed, smart-beta ETFs that cover environmental, social and governance principles, including the Columbia Sustainable U.S. Equity Income ETF (NYSEArca: ESGS), Columbia Sustainable International Equity Income ETF (NYSEArca: ESGN), Columbia Sustainable Global Equity Income ETF (NYSEArca: ESGW).
The Columbia products provide exposure to companies that may offer sustainable levels of income as well as total return opportunity. Specifically, the underlying indices will screen for companies based on dividend yield, dividend growth and cash flow factors, which could help target those with the ability to support dividend growth. Moreover, the benchmarks include a “sustainable” focus, or companies that adhere to environmental, social and governance (ESG) practices.
More recently, Columbia Threadneedle launched the Columbia Diversified Fixed Income Allocation ETF (NYSEArca: DIAL), which follows an alternative indexing methodology to potentially help bond investors generated improved returns and diminish the negative effects of sudden risks. The new 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.
“Strategic beta for Columbia Threadneedle is really about isolating the factors that have contributed to the most to performance and offering that in a cost-efficient ETF structure,” Zeitoun added.
These alternative or smart beta index-based ETFs allow investors to make up for the potential risks associated with traditional beta index funds that weight components by market capitalization, which may cause investors to lean heavily toward the largest components or tilt toward more expensive areas of the market.
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