Smart Beta Short Term Bond ETF Unveiled

September 21, 2021

Today, issuer Columbia Threadneedle launched a smart beta take on the short-term bond space. The Columbia Short Duration Bond ETF (SBND) tracks the Beta Advantage Short Term Bond Index, which targets a duration of 3.5 years or less and evaluates the individual segments of the bond market it covers based on yield, quality and liquidity, according to its prospectus.

SBND comes with an expense ratio of 0.25% and lists on the NYSE Arca.

Marc Zeitoun, Columbia Threadneedle’s chief operating officer and head of strategic beta, notes that inflows to short-term bond funds have been strengthening in recent months, with $125 billion expected during 2021, compared to $93 billion during 2016-2019 and $95 billion in all of 2020. However, he says that is a decision to “park” rather than “allocate” assets largely due to concerns around rising rates.

“By doing that ‘parking job,’ they're giving up on a lot. And one of the things that they're giving up on is yield,” Zeitoun noted.

Methodology

The new ETF’s index covers four categories of U.S. securitized debt (weighted at 30%); U.S. investment-grade corporate bonds (30%); U.S. high yield corporate bonds (20%); and emerging markets sovereign and quasi-sovereign debt (20%). Those four categories are drawn from six fixed income indexes using customized criteria for each index. The indexes that make up the selection universe are as follows:

  • Bloomberg US MBS Total Return Index
  • Bloomberg US Aggregate ABS Total Return Index
  • Bloomberg Non-Agency CMBS Aggregate Eligible Index
  • Bloomberg US Corporate Total Return Index
  • Bloomberg US Corporate High Yield Total Return Index
  • Bloomberg Emerging Markets USD Aggregate Total Return Index

“Going wide and not long has given us the yield without the volatility,” Zeitoun said in reference to SBND’s short-term exposure across a range of bond categories. “We think that if you're going to go short, you should be in something that continues to generate income, because your client wants income more than anything else when investing to fixed income.”

Ronald Stahl, senior portfolio manager and head of short duration & stable value at Columbia Threadneedle, notes that the securitized debt—such as MBS, ABS and CMBS—is the stable anchor of the portfolio where the higher quality is found, generally rated AA or AAA, while the investment-grade corporate debt aims a little lower on the credit quality range, mainly around BBB. He adds that advisors his team has spoken with are particularly nervous about what will happen with rates after the Fed starts to taper.

SBND uses an optimized approach to tracking its resulting underlying index, and typically holds 150-175 securities from an index that had more than 3,200 components as of Aug. 31. The underlying benchmark rebalances at the end of each month, the document says.

Columbia Threadneedle offers nine other existing ETFs with total assets under management of $1.7 billion.

Contact Heather Bell at [email protected]

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