Smart Beta & Fixed Income: A Surprisingly Perfect Match

By Kelly Ye via

If the idea of combining smart beta and fixed income sounds a bit foreign to you, you’re not alone. Smart beta first became popularized in the equities market, largely because applying smart beta concepts to equities is quite straightforward.

With plenty of readily available company and industry data, long track records, and broad time horizons, it’s not particularly difficult to select stocks using factors like size, value, momentum, volatility, and quality. Applying those same factors to the complex fixed income market, however, can be more than a little challenging. However, it is a challenge that can be overcome. By applying smart beta to fixed income, it’s possible to combine the investment alpha of active management to the structural alpha of an ETF—and gain the potential benefits of both.

Fixed income is a necessity for most investors, though today it can feel more like a necessary evil. Yields are historically low, and yet investing in fixed income is vital to meeting certain investment goals—from managing risk to seeking income to achieving longer-term risk-adjusted returns. It begs the question: is there a better way to invest in fixed income? My answer: absolutely.

As someone who has lived and breathed fixed income for more than a decade, I feel like I’ve seen the space from just about every angle there is. I’ve been immersed in the research. I’ve built and reviewed many models.

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