Uncertain times see funds flow to Columbia Threadneedle’s diversified multi-sector fixed income offering 

Marc Zeitoun, Columbia Threadneedle

Columbia Threadneedle’s Diversified Fixed Income Allocation ETF (DIAL), a strategic beta multi-sector fixed income ETF, has seen its assets rise to over USD1 billion, with USD500 million of net new inflows in the past six months, following its three-year anniversary in October 2020. 

The firm writes that while most fixed income ETFs posted fairly anaemic returns in 2020, DIAL’s index, the Beta Advantage Multi-Sector Bond Index, has gained 9.64 per cent and an annualised return of 4.97 per cent since inception compared to the Bloomberg Barclays US Aggregate Bond Index, which had a return of 0.71 per cent and 3.47 per cent respectively. 

Marc Zeitoun (pictured), Head of Strategic Beta and COO of North America Distribution for Columbia Threadneedle Investments, says: “The fund was built to generate an income in an uncertain rate environment and it is proving its metal here.” 

DIAL tracks the Beta Advantage Multi-Sector Bond Index, a diversified portfolio of fixed income securities across six sectors including US Treasuries, global ex-US treasuries, US investment-grade corporate bonds, US mortgage-backed securities, US high-yield corporate bonds and emerging markets sovereign debt. 

“Some solutions are incredibly nimble but there are some that are longer term, seeking a secular trend and DIAL is that, seeking to generate income by selectively allocating to different sectors.” 

Zeitoun notes that over the last five years, some USD187 billion has gone into short term government bonds and short-term bonds, and close to half of that happened in 2020. 

“And in 2021 it is outpacing 2020,” Zeitoun says. “Which tells us that investors are rushing to the shorter end of the curve and staying in the middle of the playing field and waiting it out or looking to reallocate opportunistically.” 

The problem is, he believes, that allocation to fixed income ‘shouldn’t be a holding pen for when to allocate to equities they should be a strategic allocation in themselves’. 

Investors then look to other sectors such as asset backed securities, mortgages, corporate bonds, high yield or emerging market debt. 

“Each one of these sectors has pitfalls and danger zones that professional managers know how to avoid and DIAL was built to do this,” he says. “We are so thrilled that investors have seen that in DIAL and also in our municipal product, MUST.” 

Zeitoun says that there is more uncertainty in the markets at the moment, which creates hesitancy and a need for a defensive posture. “Our approach to product development is to meet the clients where they want to be met and our best thinking is in our active suite, which expresses what we think is going to happen.” 

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