Specifically, each bond is ranked according to its marginal contribution to risk, or MCR, a measurement of the amount of risk a security contributes to a portfolio of securities. The measure is calculated using a bond’s duration and the difference between the bond’s spread and a weighted average spread of the bonds in the broader index universe. Those with a higher MCR will ad more credit risk than debt with a lower MCR. The underlying index will only select the 50% of bonds measured to have the least credit risk based on their MCR.
Due to its indexing methodology, the high-yield low-vol bond ETF ends up with a portfolio that more accurately measures credit risk relative to ratings issued by credit ratings agencies, which can be delayed, and is comprised of lower risk, higher rated, more liquid high yield bonds.
HYLV’s sector exposures include consumer discretionary 22.0%, financials 13.0%, telecom services 12.4%, energy 11.5%, materials 8.8%, health care 8.6%, industrials 8.5%, information technology 8.0%, consumer staples 2.9%, real estate 2.1% and utilities 2.1%.
Credit quality exposure includes speculative-grade BB+ 25.4%, BB 37.1%, BB- 20.1%, B+ 7.6%, B 6.8% and B- 3.0%.
The fund shows a 4.32 year effective duration, and fixed-income investors will will like to know that the ETF provides yield distributions on a monthly basis.
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