When mulling corporate bonds and the related exchange traded funds, advisors and investors often focus on credit ratings. The FlexShares Credit‐Scored US Corporate Bond Index Fund (NasdaqGM: SKOR) takes a different approach.
SKOR is not the run of the mill corporate bond ETF. The new ETF tracks the Northern Trust Credit-Scored US Corporate Bond Index, which focuses issues from companies with quality characteristics such as strength in management efficiency, profitability, and solvency, according to FlexShares.
“Until the economic crisis of 2008, many investors relied on the ratings provided by the nationally recognized statistical rating organizations (NRSROs) to help make the full determination of credit worthiness of an individual bond issuer,” said FlexShares in a recent research piece. “In recent years, however, we developed a quantitative model that we believe helps identify and respond to changing issuer/industry information and shifting macro environments.”
SKOR’s underlying index only includes issues with at least $500 million outstanding. SKOR intentionally excludes smaller, illiquid issues to enhance its liquidity and transparency profile.
SKOR’s selection universe includes bonds with maturities of two to 10 years. The ETF has a weighted average effective duration of 4.69 years.