Smart Beta Bond Selection
The term Smart Beta refers to investment strategies that utilize alternative index construction rules to the normal market capitalization-based indices. The emphasis is on capturing “investment factors or market inefficiencies in a rules-based and transparent way”.
Why Is the Smart Beta Approach a Good Idea?
One of the problems that investors have always had is that it was difficult to get the yield premium available from corporate bonds while still getting them at a low cost.
Most investors would try to track the market capitalization-weighted index via bond funds.
Yet, even though this was the common method, it did not actually do anything to minimize the amount of risk the investors were facing.
It often shows that you should invest in companies that are indebted, and this does not always translate to a quality reward for those who invest.
What Does the IncomeClub Smart Beta Do?
Instead of using the traditional method of finding bonds for investments, the Smart Beta from IncomeClub chooses the bonds based on fundamental measures. This helps to find bonds that will have better performance with less risk.
The goal of the Smart Beta is to help clients who are seeking an affordable solution that makes choosing the right bonds easier than ever. It’s a far better solution for those who have been having issues trying to find quality investment bonds and who have been relying on the older system.
One of the biggest benefits includes that focus on increasing the yield through a smart selection of the best choices. The Smart Beta helps to find those that have lower volatility, and that are still well diversified.
In addition, there is a low turnover, which helps to formulate a buy and hold approach when it comes to investing in individual bonds. Something else that users of the Smart Beta enjoy is the fact that there is a lower cost.
The fees and the transaction costs are as low as possible, which means that the returns for the investor will be as high as possible. With so many of the other, traditional investment methods out there, this does not happen.
Investors who choose to use Smart Beta investment approach find that they are able to reduce their risk through “sector and credit rating allocation”, ultimately allowing them to make much better investment decisions.
In addition, the risk is reduced through the aforementioned diversification, as well as smart maturity distribution. Though you are keeping your risks low, you will still be able to maximize your yield.
It is the best of both worlds for investors.
The Three-Step Approach for IncomeClub’s Smart Beta
Let’s look at the way that IncomeClub approaches the Smart Beta to see what makes it different.
Step 1:Fundamental Selection – Through the proprietary Asset Allocation Algorithm, Smart Beta looks to add value to the potential bonds via the “intelligent bottom-up issuer selection and sector diversification”. It will then create a selection of individual bonds that have the best risk/rewards characteristic.
Step 2: Market Selection – Smart Beta uses a special filter that looks at two different criteria to help to narrow down the selection of the best bonds. It checks the maturity and the market availability.
Step 3: Execution – IncomeClub will have direct access to bond trading through a variety of places such as Muni Bonds Center, Bond Desk, the NYSE, and more. The Execution Algorithm then combines the buying orders from investors to a large block trade, which helps to keep the costs down.
Smart Beta investment approach is the smart move for investors who are thinking about getting into bonds. It makes the buying process easier, and more efficient than ever without all of the confusion of indexed based approaches