We’ve just finished a tumultuous 2020, so 2021 should be a breeze, right? As we try to return to normal after a volatile year, investors will have to consider new challenges, particularly in the fixed income markets.
In the upcoming webcast, Turn the Page – Asset Allocation in 2021, Dan Phillips, Director Asset Allocation Strategy, Northern Trust Asset Management; and Michael Natale, Head of Intermediary Distribution, Northern Trust Asset Management, will outline the path to potential recovery and highlight asset allocation in 2021.
For example, fixed-income investors may be considering ways to enhance their yield opportunity through bond ETFs, like the FlexShares High Yield Value-Scored Bond Index Fund (NYSE: HYGV).
HYGV utilizes a unique screen for high-yield corporate debt. The FlexShares High Yield Value-Scored Bond Index Fund tries to reflect the performance of the Northern Trust High Yield Value-Scored US Corporate Bond Index, which hones in on value with a proprietary credit scoring model that maximizes factor inputs for value while at the same time, effectively screens for quality and liquidity risk. The bond issuers are then fundamentally evaluated against current market conditions, with low-quality issuers precluded from the index.
Specifically, the ETF focuses on value by pursuing the higher risk/return potential found by concentrating on a targeted credit beta; utilizing Northern Trust Credit Scoring methodology to eliminate bottom 10% of issuers; performing a liquidity assessment based on issuer’s debt outstanding, age, and remaining time to maturity to remove the bottom 5% illiquid securities; and intends to match the duration of a market cap-weighted index (ICE BofAML US High Yield Index), while maintaining sector neutrality.
“We believe that the index’s composite value, quality and liquidity score ranking creates the potential for greater diversification and income generation, and may enhance risk-adjusted returns. Initially, high-yield ETFs were panned by legacy high-yield active managers. They predicted dire market behaviors and atypical performance outcomes due to the ETFs’ all-day trading liquidity and full price transparency. Our research suggests that those predictions have not held up with the passage of time,” writes FlexShares.
“Our multi-factor approach represents the kind of innovation that, in our view, is needed to help investors pursue higher levels of potential income in our current low market interest rate environment.”
Financial advisors who are interested in learning more about high-yield strategies can register for the Monday, January 11 webcast here.