While smart beta is the hottest thing in the exchange-traded fund world, bond portfolios have yet to catch on. But BlackRock Inc. doesn’t mind being early to that party.
The world’s biggest money manager listed the iShares Edge High Yield Defensive Bond ETF, symbol HYDB, and an investment grade version of the fixed-income smart beta fund last month, according to data compiled by Bloomberg. Using smart beta strategies, the ETFs eschew traditional selection and weighting methodologies for customized exposures similar to those provided by active managers.
Drawn in by their growing liquidity, tax efficiency and low fees, U.S. investors funnelled a net $70 billion to bond ETFs in the first half of the year, nearly as much as they added in all of 2016, according to data compiled by Bloomberg. Those flows have largely been confined to market-capitalization weighted funds however, and not to smart beta products, which have proved far stickier with stock investors. Bond buyers continue to have faith in active managers and some remain skeptical of ETFs that use the strategies, said Rob Nestor, head of iShares smart beta at BlackRock.