Income, the Fed and What to Look for in 2020 | ETF Trends

As investors shift around their assets to adapt to the year ahead, many are considering major upcoming events and the best ways to protect their portfolio against potential twists and turns.

In the upcoming webcast, Income, the Fed and What to Look for in 2020, Carl Tannenbaum, Executive Vice President/Chief Economist at Northern Trust, will touch upon the prevailing market themes, along with the potential flash points from the Federal Reserve’s ongoing monetary policy to the changing political climate, and look for ways to better manage income expectations in 2020.

For example, the FlexShares High Yield Value-Scored Bond Index Fund (NYSE: HYGV) utilizes a unique screen for high-yield corporate debt. The FlexShares High Yield Value-Scored Bond Index Fund tires to reflect the performance of the Northern Trust High Yield Value-Scored US Corporate Bond Index, which hones in on value with a proprietary credit scoring model that maximizes factor inputs for value while at the same time, effectively screens for quality and liquidity risk. The bond issuers are then fundamentally evaluated against current market conditions, with low-quality issuers precluded from the index.

Specifically, the ETF focuses on value by pursuing the higher risk/return potential found by concentrating on a targeted credit beta; utilizes Northern Trust Credit Scoring methodology to eliminate bottom 10% of issuers; performs liquidity assessment based on issuer’s debt outstanding, age and remaining time to maturity with the purpose of eliminating the bottom 5% illiquid securities; and intends to match the duration of a market cap weighted index (ICE BofAML US High Yield Index), while maintaining sector neutrality.

As we face increased unknowns and a potentially volatile market response, investors may turn to quality and low-volatility ETF strategies to hedge risks and still maintain upside potential, such as the FlexShares US Quality Low Volatility Index Fund (NYSE: QLV). The thee ETF utilizes a quality screen to provide exposure to high-quality companies with lower absolute risk, thereby limiting potential future volatility. The quality screen analyzes a broad universe of equities based on key indicators such as profitability, management efficiency, and cash flow, and then excludes the bottom 20% of stocks with the lowest quality score. The index is then subject to regional, sector and risk-factor constraints, in order to manage unintended style factor exposures, significant sector concentration, and high turnover.

Additionally, something like the FlexShares Quality Dividend Defensive Index Fund (NYSEArca: QDEF) focuses on quality dividend-paying stocks by measuring a company’s financial health. Furthermore, it provides a defensive tilt, targeting a beta that is lower than the market universe’s beta. The smart beta indexing methodology targets management efficiency or a quantitative evaluation of a firm’s deployment of capital and its financing decisions, along with a company’s profitability and cash flow, as a way to provide a better sense of a dividend-paying company’s outlook in quickly changing conditions.

Financial advisors who are interested in learning more about strategies for the year ahead in 2020 can register for the Tuesday, February 11 webcast here.