High-yield bonds have gone mainstream and are seen as a core component in many fixed-income investor’s tool kit to enhance and diversify a traditional portfolio.
On the upcoming webcast, Potential Yield Maximization Strategies, Mark Carlson, Senior Investment Strategist at FlexShares Exchange Traded Funds, will consider the potential benefits of high-yield debt and outline ways an advisor may incorporate these investments into their portfolios.
For example, the recently launched 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.
HYGV has a 0.37% expense ratio, a 4.17 year effective duration and a 7.32% weighted average yield to maturity.
Sector weights include industrial 33.9%, consumer 23.7%, energy 16.7%, tech/telecom/media 13.8% and financials 10.0%. Sub-sector weights include cable and satellite 6.3%, independent energy 6.1%, health care 5.9%, tech 5.5%, midstream 5.0%, wireless 4.5%, media/entertainment 4.1%, metals 4.0%, pharma 4.0% and wirelines 3.8%.
While the U.S. makes up the majority of issuers at 81.8%, the high-yield bond ETF has some overseas exposures, including Canada 6.6%, U.K. 4.5%, Netherlands 1.5%, Luxembourg 1.4%, France 1.3%, Italy 1.0%, Australia 0.7%, Cayman Islands 0.4% and Bermuda 0.4%.
Financial advisors who are interested in learning more about yield-generating strategies can register for the Tuesday, July 24 webcast here.