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ETF Specialist

Are Strategic-Beta Bond Funds Smart Enough to Protect You in Market Crashes?

Don't count on it.

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Strategic-beta fixed-income funds are often marketed as a better way to invest than market-cap-weighted indexing. Among many features, these newer products typically emphasize their ability to manage risk better than their cap-weighted counterparts.

This article compares the drawdowns of three popular strategic-beta fixed-income funds and replicating portfolios of traditional index funds during three recent acute stress periods. The strategic-beta funds outperformed on only one of the three occasions.

Phillip Yoo does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.