Is FlexShares High Yield Value-Scored Bond ETF (HYGV) a Strong ETF Right Now?
Designed to provide broad exposure to the High-Yield/Junk Bond ETFs category of the market, the FlexShares High Yield Value-Scored Bond ETF (HYGV) is a smart beta exchange traded fund launched on 07/17/2018.
What Are Smart Beta ETFs?
Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.
Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.
But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.
By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.
This area offers many different investment choices, such as simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies; however, not all of these strategies can deliver superior results.
Fund Sponsor & Index
HYGV is managed by Flexshares, and this fund has amassed over $1.27 billion, which makes it one of the larger ETFs in the High-Yield/Junk Bond ETFs. This particular fund, before fees and expenses, 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 high yield, US-dollar denominated bonds of companies exhibiting favorable fundamental qualities, market valuations and liquidity.
Cost & Other Expenses
Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.
Annual operating expenses for this ETF are 0.39%, making it on par with most peer products in the space.
It's 12-month trailing dividend yield comes in at 8.68%.
Sector Exposure and Top Holdings
Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.
Looking at individual holdings, Cash (ZCTO) accounts for about 0.86% of total assets, followed by Staples Inc Callable Notes Fixed 7.5% 15/apr/2026 (ZCTO) and Uniti Group Lp / Uniti Group Finance Inc / Csl (ZCTO).
The top 10 holdings account for about 5.94% of total assets under management.
Performance and Risk
The ETF return is roughly 6.99% and is up about 7.83% so far this year and in the past one year (as of 09/19/2023), respectively. HYGV has traded between $38.86 and $41.97 during this last 52-week period.
HYGV has a beta of 0.49 and standard deviation of 8.65% for the trailing three-year period. With about 983 holdings, it effectively diversifies company-specific risk.
Alternatives
FlexShares High Yield Value-Scored Bond ETF is a reasonable option for investors seeking to outperform the High-Yield/Junk Bond ETFs segment of the market. However, there are other ETFs in the space which investors could consider.
IShares Broad USD High Yield Corporate Bond ETF (USHY) tracks BofA Merrill Lynch U.S. High Yield Constrained Index and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) tracks Markit iBoxx USD Liquid High Yield Index. IShares Broad USD High Yield Corporate Bond ETF has $9.13 billion in assets, iShares iBoxx $ High Yield Corporate Bond ETF has $14.68 billion. USHY has an expense ratio of 0.15% and HYG charges 0.49%.
Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the High-Yield/Junk Bond ETFs.
Bottom Line
To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.
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FlexShares High Yield Value-Scored Bond ETF (HYGV): ETF Research Reports
iShares iBoxx $ High Yield Corporate Bond ETF (HYG): ETF Research Reports
iShares Broad USD High Yield Corporate Bond ETF (USHY): ETF Research Reports
