The Fixed Income Factor ETFs tilt toward a number of factors through a single quality or value factor, or investors can enhance portfolio efficiency through a multi-factor methodology that combines the individual factors.
The quality score is calculated based on the bond’s maturity and credit rating. Each bond is scored based on the number of years remaining to maturity, with bonds having fewer years to maturity receiving higher scores. Each rating agency’s rating is converted into a numerical value and a bond’s credit factor score is calculated as an equally-weighted average of the numerical scores of each agency that has rated the bond. The Quality Score for each bond is computed as a weighted-average combination of these two factors, with weights of 75% and 25% for maturity and credit rating, respectively.
The value score is calculated based on a combination of value and quality factors. A value score is assigned to each eligible bond based on the bond’s option adjusted spread. Specifically, the Value Score for each bond is calculated as its percentile ranked OAS within its bond type, region and credit rating category.
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