“Fixed-Income investors limit their opportunity set by focusing on the benchmark-tracking or benchmark-hugging strategies,” Gene Tannuzzo, Senior Portfolio Manager for Strategic Income Columbia Threadneedle Investments, said.

On the other hand, Kerschner argued that there is diversification potential if you examine other sectors of the bond market. For example, investors heavily benchmarked to something like the Agg may diversify their portfolios through exposure to other yield-generating opportunities, such as high yield, corporate debt, global Treasuries and emerging market debt, which have much lower cross-correlations to U.S. government debt.

“Moving out along that risk-reward profile finds opportunities that are both less correlated and have historically offer relatively high returns,” Kerschner said.

With a well-defined strategy, an investor can manage the potential added risks that come with these higher yield-generating ideas. Tannuzzo pointed out that a bond strategy filtered for opportunity rather than indebtedness may be an attractive alternative. For instance, a yield filter may include multiple sectors throughout the U.S. and around the globe; a quality filter can avoid the “tails of the market” by removing sectors that offer no risk premium and lower quality tiers that have outsized risk; and a liquidity could focus on issues with sufficient tradability to provide investors with liquidity, managed against volatility.

Specifically, the Columbia Diversified Fixed Income Allocation ETF (NYSEArca: DIAL) follows an alternative indexing methodology to potentially help bond investors garner improved returns and potentially diminish the negative effects of sudden swings by implementing rules-based screens to covers six sectors of the debt market, focusing on yield, quality and liquidity factors.

The underlying index tries to target the six sectors, including U.S. Treasury securities (10%); global ex-U.S. treasury securities (10%); U.S. agency mortgage-backed securities (15%); U.S. corporate investment grade bonds (15%); U.S. corporate high yield bonds (30%); and emerging markets sovereign and quasi-sovereign debt (20%). Each sector is market value-weighted except for the global ex-U.S. Treasury Securities, which is equally weighted.

“The first ETF of its kind, DIAL provides convenient access to six sectors, attractively priced and managed by senior fixed income portfolio managers,” Jay McAndrew, National Sales Manager of Strategic Beta for Columbia Threadneedle Investments, said.

Financial advisors who are interested in learning more about fixed-income strategies can watch the webcast here on demand.