Real assets, particularly infrastructure, are highly complementary to high-yield fixed income investments.
One pairing that works well together is the FlexShares High Yield Value-Score Bond Index Fund (HYGV) and the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA).
The two funds were two of FlexShares’ most popular ETFs last month, as measured by net inflows. NFRA took the top spot after seeing $100 million in net inflows during June, and HYGV claimed third place, taking in $37 million in net inflows during the month.
HYGV is an ideal fit for investors looking to add income while avoiding the riskiest junk debt, while NFRA offers diversification and boosts income generation by offering exposure to companies that have predictable cash flows.
HYGV tracks a proprietary index of high-yield bonds screened for value and quality. HYGV’s methodology rates issuers based on factors like valuation, solvency, management efficiency, and profitability. The securities are screened for liquidity, and the portfolio imposes caps on individual bonds, issuers, sectors, duration, turnover, and credit score, according to VettaFi.
NFRA seeks investment results that generally correspond to the price and yield performance of the STOXX Global Broad Infrastructure Index. The market cap-weighted index invests in companies that derive at least 50% of their revenues from segments including energy, communications, utilities, transportation, and — in an unusual twist — government outsourcing, like hospitals, prisons, and postal services.
To maintain diversification, the index imposes certain constraints, such as limits on the overall weighting of each segment. The portfolio is dominated by North American equities, followed by Japan, Australia, and the U.K.
Infrastructure issuers tend to have predictable cash flows, as they provide essential services used in all economic environments. Infrastructure stocks carry both equity and interest rate exposure and can provide an alternative source of income, according to FlexShares.
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