Did you know factor-based strategies can be applied to fixed-income investments?
On the upcoming webcast Thursday, June 14, Traditional Fixed Income versus Factor-Based, Edward Kerschner, Chief Portfolio Strategist for Columbia Threadneedle Investments, Gene Tannuzzo, Senior Portfolio Manager for Strategic Income Columbia Threadneedle Investments, and Jay McAndrew, National Sales Manager of Strategic Beta for Columbia Threadneedle Investments, will delve into factor-based investments and look to an alternative indexing methodology to potentially help bond investors generate improved risk-adjusted returns.
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.
The 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.
Consistent Income in Various Market Environments
“The fund’s disciplined investment approach has the potential to help generate consistent income — even in an uncertain interest rate environment,” according to Columbia Threadneedle Investments.
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.
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The Treasuries exposure has a remaining maturity of greater than seven years, are rated investment-grade and U.S. denominated.
Global ex-U.S. Treasury exposure have a remaining maturity of between and including seven to 12 years and a yield of greater than 0% issued by Australia, Canada, France, Germany, Italy, Japan, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom.
The U.S. agency mortgage-backed securities component is comprised of U.S. agency mortgage pass-through securities backed by pools of mortgages and issued by Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) that have a 30-year fixed-rate program, an issuance date less than 1,000 days, and that are denominated in U.S. dollars.
The U.S. corporate investment-grade exposure is made up of investment grade, fixed-rate, taxable, U.S. dollar denominated debt with $250 million or more of par amount outstanding, issued by U.S. and non-U.S. industrial companies, utilities, and financial institutions that have a remaining maturity of between and including 5 to 15 years, a credit rating between and including BAA1 and BAA3.
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The U.S. corporate high-yield debt component includes non-investment grade, fixed-rate, taxable corporate bonds that have a credit rating above B3 using the Bloomberg index rating methodology, an outstanding face amount greater than $800 million, remaining maturity of less than 14 years, and issued within the past 5 years.
Lastly, the emerging markets sovereign and quasi-sovereign debt sector includes fixed-rate sovereign and quasi-sovereign debt of emerging market countries rated investment grade and non-investment grade that have a credit rating between and including BAA1 and BA3 rating and remaining maturity of between and including 5 to 15 years.
DIAL’s underlying index has an average effective duration of 6.48 yeas and a yield-to-worst of 4.05%.
Financial advisors who are interested in learning more about fixed-income strategies can register for the Thursday, Jun 14 webcast here.