Market Overview

Dial Up Income With A New Bond ETF

Dial Up Income With A New Bond ETF

Fixed income exchange traded funds are on a record-setting pace of gathering new assets this year, prompting issuers to bring new bond funds to market. The newest addition to the world of bond ETFs is the Columbia Diversified Fixed Income Allocation ETF (NYSE: DIAL), which launched Thursday.

DIAL is the latest addition to the still growing smart beta fixed income arena. Equity-based ETFs following alternatively-weighted indexes are proliferating in number and, in some cases, proving popular with investors, leaving industry observers to ponder when smart beta bond funds will begin making similar inroads.

DIAL follows the Beta Advantage Multi-Sector Bond Index, which “is rules-based multi-sector strategic beta approach to measuring the performance of the debt market through representation of six sectors, each focused on yield, quality, and liquidity of the particular eligible universe,” according to Columbia Threadneedle.

DIAL's Selection Universe

The new ETF can be seen as an aggregate bond ETF as it provides investors with exposure to multiple corners of the bond market, including U.S. Treasury securities; global ex-U.S. treasury securities; U.S. agency mortgage-backed securities; U.S. corporate investment-grade bonds; U.S. corporate high-yield bonds; and emerging markets sovereign debt.

“DIAL’s rules-based investment approach aims to address investor concerns of having consistent income with downside protection, regardless of the interest rate environment,” said the issuer in a statement.

Traditional aggregate bond funds often lack the diversification income-seeking fixed income investors are looking for as those funds are usually heavily allocated to U.S. Treasuries and mortgage-backed securities while lacking exposure to even investment-grade corporate bonds, let alone higher-yielding emerging markets debt.

Support For Smart Beta Bond Funds

The smart beta bond movement is still in its nascent stages, but some data points indicate advisors and investors will consider alternatively-weighted bond funds.

“While the strategic beta fixed income ETF market is in the early stages of adoption, according to a recent Columbia Threadneedle Investments survey of financial advisors and investment managers, over half would consider investing in a strategic beta fixed income ETF,” said DIAL's issuer. “Respondents ranked expertise as an active fixed income manager and track record as the top considerations (both 20 percent) when purchasing a fixed income strategic beta product.”

The new ETF charges 0.28 percent per year, or $28 on a $10,000 investment, making it favorably priced among smart beta bond offerings.

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