Smart-Beta Junk Bond ETF Rolls Out

Northern Trust launches its first high yield bond fund, and it has a smart beta twist.
Reviewed by: Staff
Edited by: Staff

Today, Northern Trust’s FlexShares brand has launched a smart-beta ETF focused on the high-yield bond space. The FlexShares High Yield Value-Scored Bond Index Fund (HYGV) looks to achieve a higher yield than the broad junk bond space.

The new fund comes with an expense ratio of 0.37% and lists on the NYSE Arca.

As of the end of April, HYGV’s underlying index included 980 securities from 654 issuers representing 15 countries, including the United States.


The methodology requires that all securities be denominated in U.S. dollars and fall below investment-grade in terms of rating, while not being in actual default. The methodology also requires eligible components have at least 18 months to maturity when issued, and at least a year of remaining maturity. The securities must also have an outstanding principal balance of $150 million, the prospectus says.

HYGV’s index assigns each security in the selection universe a quantitative value ranking based on valuation metrics and its yield potential, as well as based on spread analysis to determine the security’s relative value, and solvency metrics that help to measure a security’s probability of default.

The index components are weighted in such a way that its effective duration will reflect that of the overall selection universe and its sector weights will remain within 8% of the sector weights of the selection universe. The prospectus adds that individual issuers are capped at a 5% weight in the index.

The fund is the first high-yield bond ETF to be added to the FlexShares lineup, which includes 25 other ETFs, seven of which are fixed-income products.

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