Columbia Multi-Sector Municipal Inc ETF’s management team is rated Average, but a solid investment process still helps this strategy retain its Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the lowest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in A rated bonds and debt with 10- to 15-year maturities compared with category peers. The team managing the passive strategy earns the strategy an Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating, and this rating is inherited from vehicles belonging to the same branding entity and is indirectly assigned by an analyst.

Analyst Rating

Morningstar's style-agnostic investment process evaluation looks for strategies that should be able to outperform their Morningstar Category index on a risk-adjusted basis over time. Columbia Multi-Sector Municipal Inc ETF earns an Above Average Process Pillar rating.    The most important driver of the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Noteworthy risk-adjusted performance also supports the rating. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the parent firm's five-year risk-adjusted success ratio of 50%. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's relatively low success ratio suggests that the firm could do better across its fund lineup.

 Compared with other funds in the Muni National Interm Morningstar Category, this fund, historically, hews closely to peers' credit and interest-rate sensitivity over the past few years. Opening the analysis to additional factors, the portfolio has displayed biases over time, whether towards or away from certain fixed-income instruments. Relative to the average strategy in the category, the managers have been overweight A rated bonds in recent years. In the latest month, the strategy has relatively overweighted A rated bonds compared with its peers as well. Additionally, there's been a notable overallocation to debt with 10- to 15-year maturities over the past few years. Compared with category peers, the strategy had more exposure to debt with 10- to 15-year maturities in the most recent month. Finally, during the past few years, the fund leaned away from corporate debt. Nevertheless, the fund's corporate bonds exposure was in line with peers in the latest month.

 This strategy has a modest 2.6% 12-month yield, lower than its average peers' 2.8%. In addition, it has a 3.1% 30-day SEC yield (a measure similar to yield-to-maturity). A lower yield tends to indicate lower credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been lower than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated A.

Above Average

Process

Columbia Threadneedle’s team receives An Average People Pillar rating. The largest contributor to the rating is the stability of the management team. Specifically, the fund has not seen a manager change in the last one year. A low cost, with fees that rank in its category's least expensive fifth, also contributes to the rating. Fees reduce net returns, so the managers have a lower expense hurdle to overcome. Lastly, the rating is limited by the parent firm's five-year retention rate of 67%, which suggests it could do more to retain its portfolio managers.

Average

People

Columbia Threadneedle is undergoing significant transitions on the personnel and operational fronts, underpinning an Average rating.

Colin Moore, Columbia CIO for nearly 20 years, retired at the end of 2021; William Davies, who had been CIO of global equities, replaced him. Moore had worked over the past several years to promote collaboration across his investment teams, including compelling portfolio managers to work with a centralized research pool and to act within consistent risk guardrails. The firm also made moves to streamline its product offerings, including merging or liquidating 28 strategies from January 2020 through March 2022.
These are sensible efforts, though there remain ongoing areas of uncertainty for Davies and CEO Ted Truscott to navigate. Though the firm's fixed-income team is mostly stable, its domestic-equity team has struggled for years with elevated turnover. Adding to this complexity, Columbia closed on its acquisition of Bank of Montreal's European investment business in November 2021, gaining numerous new U.S., U.K., and European-domiciled equity strategies, a compelling environmental, social, and governance capability, and a staff of 700 people. Though there are opportunities for Columbia to draw additional resources and capabilities from BMO, including specialists such as Pyrford International, it will take time to assess how these two firms mesh as a combined entity.

Parent

Columbia Multi-Sector Municipal Income ETF

MUST tracks an index with fixed-weight exposure to multiple sectors of the US municipal bond market. Each sector is market-value weighted.

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ETF Trends CEO Tom Lydon discussed the Columbia Multi-Sector Municipal Income ETF (MUST) on this week's “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show. MUST seeks investment results that, before fees and expenses, closely correspond to the index's performance.

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