BlackRock and S&P bringing "smart beta" to fixed income


S&P Dow Jones Indices (MHFI +0.4%) expects to unveil smart beta bond indexes in Q4, while BlackRock (BLK +0.3%) doesn't yet have a timetable, but is experimenting with different ways of weighting components of the Barclays Aggregate Bond Index (AGG -0.1%) to make ETFs based on the new indexes, according to the company's Daniel Gamba.

Those issuers with the most debt dominate traditional bond indexes, but smart beta supposedly reduces risk by giving more weight to factors like corporate cash flow, or economic growth rates in the case of sovereign paper.

ETF issuers like iShares hope smart beta funds will lure investors seeking alternatives at a time of worry about higher rates. Smart beta is also more profitable for issuers - Vanguard's Total Bond Market ETF costs $8 in fees for every $10K invested as opposed to a number of smart beta funds charing $50 for every $10K.

ETFs: AGG, BOND, BND, SCHZ, LAG, SAGG, DI, GBF, LDUR, FWDB

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