The Quest for Income: Smarter Approaches to Meeting Clients’ Income and Stability Needs


In this stubbornly low interest rate environment, investors have struggled to strike a balance between low cost and acceptable return, as most standard bond benchmarks weren’t designed with investors in mind. With increasing rate uncertainty, what’s the best way for investors to balance income, diversification and downside protection?

In the next webcast, The Quest for Income: Smarter Approaches to Meeting Clients’ Income and Stability Needs, Marc Zeitoun, Head of Strategic Beta and Private Client Advisory at Columbia Threadneedle Investments; Jay McAndrew, vice president and national sales manager at Columbia Threadneedle Investments; and Katherine Nuss, vice president and portfolio manager of fixed income clients at Columbia Threadneedle Investments, will discuss the risks of traditional indexing of market cap weighted bonds and highlight alternative methodologies to help financial advisors diversify their risks and maintain their income.

For example, the ETF Columbia Diversified Fixed Income Allocation (NYSEArca: DIAL) follows an alternative indexing methodology to potentially help bond investors achieve better returns and potentially lessen the negative effects of sudden swings.

The Bond ETF attempts to mirror the performance of the Beta Advantage Multi-Sector Bond Index, a policy-based, multi-sector rule-based approach to investing in the debt market. The underlying smart beta index covers six sectors of the debt market, focusing on yield, quality and liquidity.

The underlying index attempts to target six sectors, including U.S. Treasury securities (10%), non-U.S. World Treasury securities (10%), U.S. agency mortgage-backed securities (15 %), investment grade US corporate bonds (15%), US high yield corporate bonds (30%), and emerging market sovereign and quasi-sovereign debt (20%). Each sector is market-weighted with the exception of non-U.S. Global treasuries, which are also weighted.

Exposures to Treasury securities have a residual maturity greater than seven years and are rated investment grade and denominated in US.

Global Treasury exposures outside the United States have a residual maturity of between 7 and 12 years inclusive and a yield greater than 0% issued by Australia, Canada, France, Germany, Italy, Japan, New Zealand, Norway, Sweden, Switzerland and the United Kingdom.

The US Agency Mortgage Backed Securities component includes US agency mortgage debt securities backed by mortgage pools and issued by the Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC ) which have a fixed term of 30 years. rate program, an issue date of less than 1,000 days, and which are denominated in US dollars.

Exposure to US investment grade companies consists of investment grade, fixed rate, taxable, US dollar denominated debt securities with a nominal amount of $ 250 million or more issued by industrial companies, US and non-US utilities and financial companies. institutions with a residual maturity between 5 and 15 years inclusive, and a credit rating between BAA1 and BAA3 inclusive.

The high yield U.S. corporate debt component consists of lower quality, fixed rate taxable corporate bonds that have a credit rating above B3 using the Bloomberg Index rating methodology, with over $ 800 million outstanding. dollars and a residual maturity of less than 14 years and which have been issued within the last five years.

Finally, the sovereign and quasi-sovereign debt sector of emerging markets includes fixed rate sovereign and quasi-sovereign debt of emerging countries rated investment grade and non-investment grade which have a credit rating between BAA1 and BA3 inclusive and the rest maturity between 5 and 15 years inclusive.

Financial advisors who want to learn more about a smarter approach to income investing can register for the Thursday, September 30 webcast here.

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