Getting high yield doesn’t automatically mean that fixed income investors must take on high risk, especially with ETFs like the FlexShares High Yield Value-Scored Bond Index Fund (HYGV).
While the Consumer Price Index (CPI) keeps rising in the U.S., the pain of inflation is shared in other parts of the world. The United Kingdom, for example, is also seeing inflation run hot.
“In a spirit of misery loving company, Americans would like to welcome their European friends to the global inflation party,” the Wall Street Journal reports. “Recent data suggest price rises remain out of control in the Old World, and no one has a good plan to rein them in.”
“Numbers released Wednesday (January 19) showed consumer-price inflation hitting 5.4% in the United Kingdom in December compared to a year earlier, the highest rate since 1992,” the WSJ adds. “Energy and food as always were the main drivers, although prices for items such as furniture and clothing are also rising.”
Mitigating Credit Risk By Focusing on Value
HYGV benefits from a systematic approach that ensures a broadly diversified portfolio with debt maturities ranging primarily between three and 10 years. Sector-wise, debt holdings are mostly concentrated in the industrial, consumer, and energy sectors, with about 85% within the U.S.
Per its fund description, 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 and 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.
That risk management component with a focus on value can help reticent investors who want to add high yield to their portfolio but are a little more risk-averse. HYGV gives these fixed income investors a little more peace of mind while still keeping fees low at a 0.37% expense ratio, which falls below the category average.
“High yield bonds remain an important component of many investors’ fixed-income holdings, offering the potential for diversification and income generation,” FlexShares says. “Low bond yields and the evolving high-yield fixed income market place have made pursuing these potential benefits more difficult. The FlexShares High Yield Value-Scored Bond Index Fund (HYGV) is designed to address the needs of these investors and the conditions of today’s fixed-income markets by employing multi-factor selection criteria and diversification controls that we believe may enhance the portfolio’s risk-adjusted returns.”
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