Today Columbia Threadneedle Investments announced in a press release the launch of their newest fixed income ETFs with the addition of the Columbia Short Duration Bond ETF. This ETF focuses on income generation from four different parts of the debt markets: U.S. investment-grade corporates, U.S. investment-grade securitized debt, U.S. high-yield, and emerging market sovereign and quasi-sovereign debt.
SBND is a short-duration portfolio that seeks to generate income without taking on excessive credit risk or sacrificing yield by balancing quality, yield, and liquidity. The fund takes a rules-based approach to indexing that seeks to balance concerns of reduced yields within short-duration bond investing.
“In a challenging interest rate environment, investors may need to adjust their fixed income allocations and broaden their income opportunity set,” said Ronald Stahl, senior portfolio manager and head of short duration and stable value at Columbia Threadneedle Investments in the press release. “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.”
The fund seeks to track the Beta Advantage Short Term Bond Index, which leverages Columbia Threadneedle’s expertise as an active fixed-income manager.
- The Bloomberg US Corporate Total Return Index contains securities that are investment-grade, fixed-rate, taxable, U.S. dollar-denominated debt with $250 million or more of paramount outstanding that have a maturity of at least one year but less than seven years. This debt can be issued by both U.S. and non-U.S. industrial companies, utilities, and financial institutions, with a credit rating between BAA1 and BAA3. Of the issuers, the top four issues are selected based on their amount outstanding.
- The Bloomberg US Corporate High Yield Total Return Index is made up of securities that are publicly issued, U.S. dollar-denominated, non-investment-grade, fixed-rate, taxable corporate bonds. They must have a credit rating between BA1 and BA3, an outstanding face amount greater than $500 million, and maturity remaining that is less than five years. This sub-index does not include pay-in-kind or partial pay-in-kind instruments.
- The Bloomberg US MBS Total Return Index is made up of U.S. agency mortgage pass-through securities that are backed by pools of mortgages and issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Securities contained within have a 15-year fixed-rate program and were issued 32 months ago or less.
- The Bloomberg Non-Agency CMBS Aggregate Eligible Index is made up of fixed-rate, publicly issued, U.S. dollar-denominated, non-agency collateralized mortgage-backed securities (CMBS). The Index only holds securities with a remaining weighted average life of less than five years.
- The Bloomberg US Aggregate ABS Total Return Index is made up of fixed-rate, publicly issued, U.S. dollar-denominated credit card, automobile, device payment plan, equipment, and stranded-cost utility asset backed securities (ABS). The Index only holds automobile bonds with a remaining weighted average life of less than five years.
- The Bloomberg Emerging Markets USD Aggregate Total Return Index contains securities from emerging markets that are investment-grade and non-investment-grade fixed-rate sovereign and quasi-sovereign debt that have a maturity of at least a year but less than six years. Corporate issuers are excluded and debt must have a rating between BAA1 and BA3, and they must have a minimum amount outstanding of at least $1 billion. Issuers contained within the sub-index are capped at a 10% country weighting that is based on market value.
The index utilizes a rules-based strategic beta approach and has the following exposure allocations: 30% to U.S. securitized debt, 30% to U.S. corporate investment-grade bonds, 20% to U.S. corporate high-yield bonds, and 20% to emerging markets sovereign and quasi-sovereign debt. The index’s duration is expected to be 3.5 years or less.
The fund does not invest in assets based on their merits or conduct investment research or analysis, but instead seeks only to correlate its performance with the index no matter what the market conditions are, and it does not take any defensive positioning.
SBND joins two other fixed income strategic beta solutions from Columbia Threadneedle: the Columbia Diversified Fixed Income Allocation ETF (DIAL) and the Columbia Multi-Sector Municipal Income ETF (MUST).
The fund carries a 0.25% expense ratio and is reconstituted and rebalanced monthly, and it has monthly distributions.
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