“We believe the FlexShares Corporate Bond Credit Scoring Model is a fully objective credit evaluation process that allows us to construct innovative corporate credit indexes, with little reliance on NRSRO ratings,” said FlexShares. “Instead the model evaluates debt issuers based on economic analysis such as management efficiency, profitability and market solvency, which are then sorted and ranked within five macro industry sectors.”
Clearly, SKOR focuses on more than just credit ratings alone, but that does not mean the ETF’s portfolio is risky. Essentially all of the fund’s holdings are rated AA, A or BBB by S&P. SKOR, which debuted in November 2014, has a 30-day SEC yield of 3.33%, according to issuer data.
The model that serves as a backstop for SKOR “also addresses potential corporate bond liquidity challenges by optimizing a carefully selected subset of all credit issuers from which illiquid, orphaned and small lot names have been removed,” said FlexShares. “Then, multiple factors are taken into account including the characteristics of issuers’ total debt structure, minimum exposure percentages and odd-lot trade restrictions, to aid in developing our corporate bond indexes.”
For more information on the fixed-income space, visit our bond ETFs category.