ETF Specialist

Four Questions for Evaluating Strategic-Beta Fixed-Income Funds

Phillip Yoo, CAIA

Strategic-beta (often called "smart beta") fixed-income funds attempt to offer the best of active and passive management: benchmark-beating performance with transparent portfolio construction rules and low fees. Evaluating strategic-beta fixed-income funds can appear to be complex. However, by asking the following four questions investors can easily perform litmus tests on this new breed of fixed-income funds.

1. What is the investment universe?
2. How does the strategy select bonds?
3. How does the index weight bonds?
4. How much active risk does the portfolio take?

Phillip Yoo, CAIA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.