The growth versus value narrative doesn’t have to begin and end with equities when bond-focused exchange traded funds (ETFs) can get in on the action with the FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR).
Even as the effects of the pandemic are slowly dissipating, the risk of default is always apparent when investing in debt issues. As such, seeking quality bonds that focus on investment-grade quality is never out of style.
That said, SKOR’s methodology sifts through a universe of corporate bonds that will not only provide income, but reduce credit risk.
SKOR seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust US Corporate Bond Index. The underlying index reflects the performance of a broad universe of U.S.-dollar denominated investment grade corporate bonds that can potentially deliver a higher total return than the overall investment grade corporate bond market, as represented by the Northern Trust US Investment Grade Corporate Bond Index.
“Corporate bonds remain an important component of many investors’ fixed-income holdings, offering the potential for diversification and income generation,” a FlexShares Fund Focus article noted. “Low bond yields and the potential shortcomings of traditional credit scoring methodologies have made pursuing these potential benefits more difficult.”
“The FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR) 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,” FlexShares added.
Corporate Bond Sales Steady
At the zenith of the Covid-19 scare in 2020, fixed income investors were hesitant to jump into corporate bonds. The debt market stabilized when the Federal Reserve decided to purchase bond ETFs to minimize the risk of credit defaults.
Now, as the economy continues to regain its footing amid the re-opening phase, credit spreads are tightening, which might dissuade fixed income investors from corporate bonds.
Yet these tighter spreads aren’t keeping investors away. Historically low interest rates have allowed corporations to continue issuing more debt when necessary.
“Cheap borrowing costs have encouraged issuance to stay steady, with sales this month of $136 billion broadly in line with estimates and borrowers able to bring new deals with minimal concessions to their outstanding debt,” a Bloomberg article said.
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