Tuesday, February 24, 2015

Smart Beta Starting to Extend to Bonds

BlackRock is launching a new ETF on Thursday that is sort of a smart beta approach to bonds.  The ETF will use a mathematical model to try to have equal exposure to interest rate and credit risk.  You could argue that this is technically not smart beta depending on your definition, but this could be the start of new ETFs focused on the fixed income, especially as investors expect rates to rise which would hurt plain vanilla bond ETFs.  Like everything there are going to be some good and bad products launched.  We will need to do some more research on this strategy to see if we want to add this to our models.  On the surface I am not sure I like it that much, being tactical I would rather see  a product that shifted exposure from credit to interest rate risk tactically.  

We are also expecting to launch our own income ETF in the next couple of months.

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