6 Questions to Ask Before Buying a Strategic-Beta Bond ETF (Part 1)

Strategic-beta fixed-income funds are index-based strategies that attempt to combine the best of active and passive

Alex Bryan 18 October, 2018 | 11:14
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Traditional broad, market-cap-weighted bond index funds have a lot going for them. They harness the market’s collective wisdom, charge low fees, tend to have low transaction costs, and don’t face key-person risk.

But the idea of assigning larger weightings to larger debtors isn’t intuitively appealing. In some cases, this approach, together with differences in how the opportunity set is defined, has made these bond indexes a low hurdle for active managers. For example, this market-cap weighting gives broad investment-grade bond benchmarks heavy exposure to low-yielding Treasuries and agency debt. 

Strategic-beta fixed-income funds are index-based strategies that attempt to combine the best of active and passive. Most of these attempt to deliver better performance than traditional bond indexes in a more cost-efficient, transparent, and systematic manner than actively managed alternatives.

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About Author

Alex Bryan

Alex Bryan  is the Director of Passive Fund Research with Morningstar.

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