IndexIQ Reacts To Fluctuating Bond Market Changes With This ETF

As liquidity remains vital, the bond market has shown strong performance for certain funds as of late. There are ups and downs, but there’s also enough attention to the kind of focus necessary to work at controlling spreads in different areas.

As stated in a recent IndexIQ blog post, “Elevated levels of volatility can make it hard to be patient, however. In high yield as elsewhere, diversification can help investors weather this period of uncertainty. An ETF built on an underlying methodology that includes a broad portfolio of lower volatility, high yield bonds diversified by sector is one approach. IQ S&P High Yield Low Volatility Bond ETF (HYLV) Besides the potential for a recovery in asset prices, there are other benefits to staying the course.  A non-intuitive one is the impact on dividend reinvestment.”

ETF Trends spoke with Dan Peterson, ETF Product Manager at IndexIQ, about the relative performance of the HYLV, which has found itself succeeding in some months, particularly compared to other months.

As Peterson states, there’s been a lot of work on the research side for IndexIQ to develop some fresh content. Screening based on spread duration rather than credit ratings has really helped that strategy. So, it’s dead-weighted at the top half of the junk universe, based on spread duration, rather than ratings.

“Usually what we come up against, with that strategy, the fallen angels fund,” Peterson explains, “What we’ve thought there is how looking at something like the energy space if an energy name falls out of the investment grade, it does not mean it’s still high quality/high yield. It could actually really be sinking to the bottom if it’s really suffering from the oil markets.”

For HYLV, it would potentially avoid energy bonds that are exhibiting a lot of sensitivity to rapid spreads.

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