Investors looking for a steady stream of income should look no further than the FlexShares Credit-Scored U.S. Long Corporate Bond Index Fund (LKOR).
LKOR tops the charts with an annual dividend yield of 6.96%, the highest of any fund in FlexShares’ ETF line-up, according to ETF Database. Launched in 2015, the fund has garnered $51 million in AUM.
LKOR can be an ideal fit for investors seeking exposure to investment-grade U.S. corporate bonds with intermediate-term maturities and a focus on issuer quality and value.
LKOR follows a proprietary index of investment-grade debt with maturities of 10 years or longer, but with unique attributes characteristic of FlexShares’ strategy.
The index scores bonds by evaluating the issuers’ value and quality by looking at measures like solvency, profitability, and management efficiency. The index weights the portfolio towards those with the highest scores while those with the worst performance are excluded. Then, to preserve diversification, the methodology limits the weight of individual bonds, issuers, sectors, duration, and turnover, according to ETF Database.
The fund has an expense ratio of 22 basis points. While low, it is above the FactSet Segment average at just 10 basis points — but comparing income-generating offerings by expense ratio alone would be a mistake.
ETF Database compared performance to a few other long-term corporate bond ETFs that charge a lower management fee than LKOR, such as the Vanguard Long-Term Corporate Bond ETF (VCLT) and the iShares Long-Term Corporate Bond ETF (IGLB).
LKOR beat them both. It also outperformed the iShares Edge Investment Grade Enhanced Bond ETF (IGEB), which also tries to mitigate risk by focusing on quality and value.
Past performance is no guarantee of future results, but LKOR is definitely worth considering.
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