On its own, a value screen also affects bond portfolios.
“Tilting toward value can create a portfolio of high yielding securities relative to the broad market,” according to BlackRock. “However, these higher yielding bonds are often the most risky, resulting in a lower risk-adjusted return than the broad market. The value portfolio could generate higher returns and yields but not without the cost of higher risk.”
IGEB holds 230 bonds and has an effective duration of 7.5 years. HYDB holds 175 high-yield bonds and has an effective duration of 3.94 years.
“Applying a quality screen to the market can remove those securities with the highest expected chance of defaulting, resulting in a higher quality universe of securities from which to build a portfolio. Bonds are then chosen using a value tilt, picking the higher value names after the worst have been removed,” according to BlackRock.
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