Beaumont Capital launches ETF-based smart beta fixed income strategy

Jan 11th, 2017 | By | Category: Fixed Income

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Massachusetts-based wealth manager Beaumont Capital Management, has launched the BCM Dynamic Global Fixed Income strategy, a smart beta investment solution seeking opportunities in a universe of fixed income ETFs based on bond market volatility.

Dave Haviland, Beaumont Capital Management’s Managing Partner.

Dave Haviland, Beaumont Capital Management’s Managing Partner.

The strategy uses a set of quantitative models seeking to identify patterns in the volatility of domestic and international fixed income markets as a whole to either take advantage of opportunities or avoid negative volatility by reallocating to defensive positioning.

The investment universe for the Dynamic Global Fixed Income strategy includes ETFs covering exposure of US Treasuries, Treasury Inflation-Protected Securities (TIPS), foreign Sovereign bonds, investment grade and high yield global corporate bonds, and emerging market debt. Also included in the universe are a set of low-risk ETFs that provide exposure to high-quality, short-duration fixed income ETFs when global bond markets are determined to be volatile.

A set of five quantitative models use both long and short term measurements to evaluate each ETF in the pool, determining if the underlying bond segment is in a “normal” or “volatile” environment. If determined to be in a normal state, each model outputs a set of desired weightings of the ETFs in the pool.  If a volatile state is determined, the model will allocate to a set of high quality, short duration ETFs. The final weighting is a combination of each model’s outputs.

“As we’ve experienced in recent months, the bond market is far from immune to periods of volatility and the risk of significant asset loss,” said Dave Haviland, Beaumont Capital Management’s Managing Partner. “More than ever, investors need the same benefits of tactical management in their fixed income portfolio as they do for their equity investments. The BCM Dynamic Global Fixed Income strategy aims to provide that level of protection as we face greater uncertainty in the bond markets.”

“Investors may forget that with rises in interest rates and the potential for continued hikes, passive fixed income is at risk of drawdowns as well,” added Eric Biegeleisen, Beaumont Capital Management’s Director of Quantitative Research. “Compounding this with the US dollar’s strength, investors need a more dynamic approach to fixed income as a way to invest in a lower-than-equity risk portfolio.”

The new strategy is part of three distinct defensive fixed income offerings to meet the challenges faced by today’s investors in a rising interest-rate environment.

The other approaches include the BCM Paradigm Tactical Fixed Income and the BCM Income portfolios. The BCM Paradigm Tactical Fixed Income strategy uses a process based on analysis of investor behaviour to identify shifts between ‘normal’ and ‘volatile’ bond environments in the US while the BCM Income strategy is a fundamental portfolio option following a long-term approach with investments in high quality fixed income ETFs with diversification across geography, type, credit quality, and duration.

All three BCM fixed income strategies can go to 100% cash or short-term bond positions in a bond bear market.

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