Getting high yield exposure doesn’t mean fixed income investors have to settle for the riskiest debt when you add a value-added strategy to the mix with ETFs such as the FlexShares High Yield Value-Scored Bond Index Fund (HYGV).
This year, value has been a strong performing factor, and it only makes sense to apply that metric to high yield bonds. It can help ease investor anxiety, especially given the stigma of high yield bonds associated with low quality debt.
“High yield bonds have advanced from a specialty fixed-income investment to a strategic, mainstream asset held across most diversified portfolio allocations,” a FlexShares Funds Focus said. “Once viewed as being the ‘penalty box’ for wayward public debt issuers, over the years, the sector has transformed into a dynamic, competitive marketplace for capital raising and refinancing.”
“A multitude of forces were needed to bring high yield out of the shadows and into the spotlight,” FlexShares said. “Now the sector is ready for a further evolution that combines earlier high yield principles with new techniques to again deliver truly high-income strategies for today’s investors.”
HYGV seeks investment results that generally correspond to the price and yield performance of the Northern Trust High Yield Value-Scored US Corporate Bond Index, which reflects the performance of a broad universe of U.S.-dollar denominated high yield corporate bonds that seeks a higher total return than the overall high yield corporate bond market, as represented by the Northern Trust High Yield US Corporate Bond Index.
Adding Value to Improve High Yield Portfolios
In today’s low-rate environment, it’s almost imperative for fixed-income investors to seek alternate sources of income, including high yield. By adding a layer of value to a high yield portfolio, investors can achieve higher yields for higher income and obtain peace of mind knowing that the debt exhibits quality characteristics.
“In our view, focusing on yield calls for a more innovative approach to building a high-yield portfolio—particularly in the areas of identifying issuer quality and targeting the potential for enhanced risk-adjusted returns,” FlexShares added. “We believe that high yield fixed-income factors such as value and quality—which our research suggests may provide the potential for long-term return premiums—may help improve high-yield bond portfolio construction.”
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