While high yield debt is an option to consider in the current fixed income environment, some investors may not want the added risk, but an option to consider is the FlexShares High Yield Value-Scored Bond Index Fund (HYGV).
“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 correspond generally 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.
“In our view, focusing on yield call 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.”
High Yield With a Quality Component
Navigating the vast array of high yield debt requires discerning analysis. With a multi-factor approach that seeks out quality-focused debt, HYGV comes with a low expense ratio of 0.37%, which is nine basis points below the category average.
“NTI’s liquidity screen is a multi-metric assessment of liquidity that incorporates such characteristics as time to maturity (e.g. time until the security reaches its maturity date as measured in years), total issuer debt outstanding (e.g. the sum of all debt outstanding for a single corporate issuer), and time since original issuance (e.g. the time that has elapsed since the security was originally issued as measured in years),” said FlexShares.
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