The Federal Reserve appears more apt to pull the trigger on rising interest rates, which fixed income investors can counter with more yield via the FlexShares High Yield Value-Scored Bond Index Fund (HYGV).
Higher yields can run concurrently with the Fed’s rate hike implementation for 2022 with corporate bonds. In the case of HYGV, the fund offers higher yield, but with a value-scored component.
Morningstar featured HYGV as one the bond funds to watch, noting that HYGV “is a solid pick for high-yield bond market exposure. It tracks the Northern Trust High Yield Value-Scored U.S. Corporate Bond Index, which seeks to maximize exposure to bonds offering higher yields while controlling for downside risk.”
That downside risk control means that FlexShares added a factor-based filter to screen out holdings. When it comes to riskier debt with higher yields, a value-screening tool can help find quality debt holdings that are not just focused on yield.
“The fund’s benchmark picks bonds from the Northern Trust High Yield U.S. Corporate Bond Index, a broadly diversified, market-value-weighted index that is representative of the available market,” the article said further. “It employs an optimizer to maximize exposure to bonds with high value scores, a proprietary metric that assesses each eligible bonds’ relative value.”
Optimizing Holdings to Minimize Risk
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.
This fund benefits from a systematic approach that ensures a broadly diversified portfolio with minimal concentration risk. For example, as of June 2021, the top 10 holdings in the fund’s portfolio accounted for 5% of assets, while the high-yield bond Morningstar Category average was 15%.
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.
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