VanEck debuted two new corporate bond ETFs on Wednesday designed to provide investors with important new tools to enhance their investment grade bond exposures.
The VanEck Vectors Moody’s Analytics IG Corporate Bond ETF (MIG) and the VanEck Vectors Moody’s Analytics BBB Corporate Bond ETF (MBBB) both began trading on Dec. 2 on the CBOE BZX Exchange, and join VanEck’s highly diversified family of income-focused ETF offerings.
Bonds are selected for the underlying indices by applying a Moody’s Analytics quantitative credit risk model, which provides investors with forward looking credit risk metrics, including a bond’s EDF™ (Expected Default Frequency) from which a fair value spread can be determined. The index methodology uses the model to identify bonds that offer attractive spreads relative to their embedded credit risk, and also uses the model to help identify bonds that are at a high risk of being downgraded to non-investment grade.
Fran Rodilosso, Head of Fixed Income ETF Portfolio Management at VanEck, said the corporate bond universe is expansive and there can be a great deal of dispersion in terms of where the market is pricing risk and a bond’s fair value.
“Finding bonds with attractive valuations and achieving outperformance is built upon accurately evaluating a bond’s expected credit risk going forward,” Rodilosso said. “Incorporating market implied information into the selection process to evaluate credit risk allows you to do that, particularly in volatile markets.”
Moody’s Analytics, a subsidiary of Moody’s Corporation, is a leading provider of award-winning quantitative credit risk analysis tools. Moody’s Analytics CreditEdge platform, which provides key inputs for the funds’ underlying indices, combines the industry’s leading probability of default model with cutting edge credit analytics to deliver a tool that can identify relative value and provide early warnings of credit deterioration.
“We have established a comprehensive set of metrics for early warning detection of credit defaults and downgrades,” said Nihil Patel, Managing Director at Moody’s Analytics. “Our research shows our credit risk metrics can help identify undervalued securities. We are thrilled to be able to offer our credit risk metrics for use in the indices underlying VanEck’s funds.”
MIG, which has an expense ratio of 20 bps, seeks to track the MVIS Moody’s Analytics US Investment Grade Corporate Bond Index (US IG Index). MBBB, which has an expense ratio of 25 bps, seeks to track the MVIS Moody’s Analytics US BBB Corporate Bond Index (BBB Index). Both indexes are rules-based and are the first U.S. investment grade bond indexes to be driven by Moody’s Analytics credit risk modeling. The indices rebalance monthly.
“Moody’s Analytics is the recognized industry leader in credit risk modeling so we are excited to be using their credit risk models and data to power these two new funds,” added William Sokol, Senior ETF Product Manager at VanEck. “We believe that these funds can offer investors the income potential and outperformance they are looking for without having to assume excessive risk, which is particularly important in this prolonged low yield environment.”
MIG and MBBB join a VanEck corporate bond ETF lineup that also includes the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL), which targets “fallen angel” high yield bonds and is ranked #1 out of 392 funds within the Morningstar High Yield Bond Category since inception, and the VanEck Vectors Investment Grade Floating Rate ETF (FLTR), which focuses on U.S. dollar denominated floating rate notes issues by corporate issuers and rated investment grade and has a unique methodology that seeks to enhance yield potential without increasing interest rate risk.
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