LLaunched on 07/17/2018, the FlexShares High Yield ValueScored Bond ETF (HYGV) is a smart beta exchange traded fund offering broad exposure to the High-Yield / Junk Bond ETF category of the market.
What are Smart Beta ETFs?
The ETF industry has traditionally been dominated by products based on market capitalization weighted indices that are designed to represent the market or a particular segment of the market.
Because market capitalization weighted indices offer an inexpensive, convenient, and transparent way to track market performance, they work well for investors who believe in market efficiency.
However, some investors believe in the possibility of beating the market through exceptional stock selection and choose another type of fund that follows un-cap-weighted strategies: the smart beta.
Based on specific fundamental characteristics, or a combination of these, these indices attempt to select stocks that have the best chance of risk-return performance.
Methodologies such as equal weight, one of the simpler options, fundamental weight and volatility / momentum based weighting are all choices available to investors in this space, but not all of them can generate superior returns. .
Fund promoter and index
The fund is managed by Flexshares and has been able to raise over $ 608.75 million making it one of the mid-sized High-Yield / Junk Bond ETFs. This fund in particular seeks to match the performance of the NORTHERN TRUST HY VLU-SCRD US CORP BD ID before fees and expenses.
The Northern Trust High Yield Value-Scored US Corporate Bond Index measures the performance of a diversified universe of high yield US dollar denominated bonds of companies with favorable fundamentals, market valuations and liquidity.
Cost and other expenses
Cost is a big factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins ââif all other fundamentals are the same.
The operating expenses on an annual basis are 0.37% for this ETF, making it comparable to most peer products in the space.
HYGV’s 12-month dividend yield is 5.60%.
Sector exposure and main titles
It is important to delve into an ETF’s holdings before investing despite the many advantages of these types of funds, such as diversified exposure, which minimizes the risk associated with individual stocks. And, most ETFs are very transparent products that disclose their holdings on a daily basis.
When you look at the individual holdings, Altice France Sa (France) -5.12% -7-15-2029 represents around 0.69% of the total assets of the fund, followed by Csc Holdings Llc -5.75% -1 -15-2030 (BKFH0Y9) and Staples Inc-7.50% -4-15-2026.
HYGV’s top 10 holdings represent approximately 5.65% of its total assets under management.
Return and risk
The ETF has added around 4.20% so far this year and has risen around 4.74% in the last year (as of 12/20/2021). Over the past 52 weeks, it has traded between $ 48.50 and $ 50.17.
The fund has a beta of 0.46 and a standard deviation of 11.19% for the three year period. With around 879 participations, it effectively diversifies the risk specific to the company.
The FlexShares High Yield ValueScored Bond ETF is not a suitable option for investors looking to outperform the High-Yield / Junk Bond ETF segment of the market. Instead, there are other ETFs in the space that investors should consider.
The SPDR Bloomberg High Yield Bond ETF (JNK) tracks the Bloomberg Barclays High Yield Very Liquid Index and the iShares iBoxx High Yield Corporate Bond ETF (HYG) tracks the Markit iBoxx USD Liquid High Yield Index. SPDR Bloomberg High Yield Bond ETF has $ 8.86 billion in assets, iShares iBoxx High Yield Corporate Bond ETF has $ 19.98 billion. JNK has an expense ratio of 0.40% and HYG charges 0.48%.
Investors looking for cheaper and less risky options should consider traditional market capitalization weighted ETFs that aim to match the returns of high yield / junk bond ETFs.
To learn more about this and other ETFs, search for products that match your investment objectives, and read articles on the latest developments in the ETF investment universe, please visit Zacks ETF Center.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.