Columbia Threadneedle launches smart beta short-duration bond ETF

Sep 27th, 2021 | By | Category: Fixed Income

Columbia Threadneedle has launched a new ETF providing smart beta exposure to a short-duration bond portfolio covering multiple fixed income sectors.

Marc Zeitoun, Head of Strategic Beta at Columbia Threadneedle

Marc Zeitoun, Head of Strategic Beta at Columbia Threadneedle.

The Columbia Short Duration Bond ETF (SBND US) has been listed on NYSE Arca with an expense ratio of 0.25%.

Methodology

The fund tracks the proprietary Beta Advantage Short Term Bond Index which targets an effective duration of 3.5 years or less and provides exposure to four fixed income sectors with weights that are fixed at each monthly reconstitution and rebalance

The four fixed income sectors and their target weights are US investment-grade corporate bonds (30%), US investment-grade securitized debt (30%), US high yield (20%), and emerging market sovereign and quasi-sovereign debt (20%).

By diversifying across several fixed income sectors, the ETF seeks to pursue higher returns than traditional short-duration bond products. For example, the $50bn Vanguard Short-Term Corporate Bond ETF (VCSH US), which invests exclusively in investment-grade corporate bonds, is currently yielding just 1.0%.

Within each of the four fixed income sectors, Columbia Threadneedle draws securities from relevant Bloomberg indices, selecting and weighting constituents using customized optimization processes. Each optimization is informed by Columbia Threadneedle’s experience in actively managing clients’ portfolios and is designed to provide the optimal balance of yield, liquidity, and quality for that sector.

Ronald Stahl, Head of Short Duration and Stable Value at Columbia Threadneedle, said: “In a challenging interest rate environment, investors may need to adjust their fixed income allocations and broaden their income opportunity set. Unlike passively managed short-duration bond funds that track traditional benchmarks, a strategic beta portfolio that tracks a customized, rules-based index designed to mitigate duration risk while capturing higher income opportunities can further diversify and complement client portfolios.”

Marc Zeitoun, Head of Strategic Beta at Columbia Threadneedle, added: “Against a backdrop of market uncertainty, we’ve seen investors increasingly use short-term bond funds to simply ‘park’ their assets until they decide what to do next. For most, this will result in an unwanted give-up on yield. We believe a cost-efficient and thoughtfully diversified strategy offers a better way to shorten portfolio duration without sacrificing income potential.”

The fund complements Columbia Threadneedle’s existing two smart beta fixed income ETFs which follow similar investment methodologies. The $1.2bn Columbia Diversified Fixed Income Allocation ETF (DIAL US) also diversifies across multiple global bond sectors but invests across the entire yield curve, while the $130m Columbia Multi-Sector Municipal Income ETF (MUST US) diversifies across five municipal bond sectors. Each ETF also tracks a proprietary index that seeks to balance and enhance yield, quality, and liquidity within each underlying sector. DIAL and MUST come with expense ratios of 0.28% and 0.23%, respectively.

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