Debuting on 7/17/2018, the smart beta FlexShares High Yield ValueScored Bond ETF (HYGV) exchange-traded fund offers investors broad exposure to the High Yield/Junk Bond ETF category of the market.
What are Smart Beta ETFs?
The ETF industry has long been dominated by products based on market-cap-weighted indexes, a strategy created to mirror the particular market or market segment.
Market-cap-weighted indices offer an inexpensive, convenient, and transparent way to replicate market returns and are a good option for investors who believe in market efficiency.
However, some investors believe it is possible to beat the market with excellent stock selection. this group likely invests in another class of funds known as smart beta, which tracks non-cap-weighted strategies.
This type of index follows the same mindset, as it attempts to select stocks that have a better chance of risk-return performance; non-cap-weighted strategies base selection on certain fundamental characteristics or a combination of these characteristics.
Methodologies such as equal weighting, one of the simplest options, fundamental weighting, and volatility/momentum-based weighting are all choices available to investors in this space, but not all of them can deliver superior returns. .
Fund Sponsor and Index
The fund is sponsored by Flexshares. It has amassed assets of over $879.72 million, making it one of the largest ETFs among High-Yield/Junk Bond ETFs. Before fees and expenses, this particular fund seeks to match the performance of the NORTHERN TRUST HY VLU-SCRD US CORP BD ID.
The Northern Trust High Yield Value-Scored US Corporate Bond Index measures the performance of a diversified universe of US dollar-denominated high yield corporate bonds with favorable fundamentals, market valuations and liquidity.
Cost and other expenses
For ETF investors, expense ratios are an important factor when considering a fund’s performance; in the long run, cheaper funds actually have the ability to outperform their more expensive cousins if all other things stay the same.
On par with most peer products in the space, this ETF has an annual operating expense of 0.37%.
Its 12-month dividend yield is 8.04%.
Sector exposure and main holdings
Although ETFs provide diversified exposure that minimizes single-stock risk, investors should also examine the actual holdings within the fund. Fortunately, most ETFs are very transparent products that disclose their holdings on a daily basis.
Regarding individual holdings, Cash (INTEL) represents approximately 1.16% of total assets, followed by Intelsat Jackson Hldgs SA (MCFE) and Condor Merger Sub Inc Callable Notes Fixed 7.375% (AAL).
HYGV’s top 10 holdings represent approximately 6.21% of its total assets under management.
Performance and risks
The ETF has lost around -13.62% so far this year and is down around -12.06% over the past year (as of 1/11/2022). Over the past 52-week period, it traded between $38.86 and $49.82.
The fund has a beta of 0.49 and a standard deviation of 12.68% for the three-year period. With approximately 981 holdings, it effectively diversifies company-specific risks.
The FlexShares High Yield ValueScored Bond ETF is not a suitable option for investors looking to outperform the High Yield/Junk Bond ETFs segment of the market. Instead, there are other ETFs in the space that investors should consider.
The iShares Broad USD High Yield Corporate Bond ETF (USHY) tracks the BofA Merrill Lynch US High Yield Constrained Index and the iShares iBoxx High Yield Corporate Bond ETF (HYG) tracks the Markit iBoxx USD Liquid High Yield Index. iShares Broad USD High Yield Corporate Bond ETF has $8.05 billion in assets, iShares iBoxx High Yield Corporate Bond ETF has $14.07 billion. USHY has an expense ratio of 0.15% and HYG charges 0.48%.
Investors looking for cheaper, lower-risk options should consider traditional market-cap-weighted ETFs that aim to match the returns of High Yield/Junk Bond ETFs.
To learn more about this product and other ETFs, find products that fit your investment goals, and read articles about the latest developments in the ETF investment universe, please visit Zacks ETF Center.
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FlexShares High Yield ValueScored Bond ETF (HYGV): ETF Research Reports
American Airlines Group Inc. (AAL): Free Inventory Analysis Report
iShares iBoxx High Yield Corporate Bond ETF (HYG): ETF Research Reports
iShares Broad USD High Yield Corporate Bond ETF (USHY): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.