Is FlexShares High Yield Value-Scored Bond ETF (HYGV) a Strong ETF Right Now?
The FlexShares High Yield Value-Scored Bond ETF (HYGV) was launched on 07/17/2018, and is a smart beta exchange traded fund designed to offer broad exposure to the High-Yield/Junk Bond ETFs category of the market.
What Are Smart Beta ETFs?
For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.
Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.
On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.
These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.
While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.
Fund Sponsor & Index
The fund is sponsored by Flexshares. It has amassed assets over $1.07 billion, making it one of the larger ETFs in the High-Yield/Junk Bond ETFs. HYGV, 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
Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.
Operating expenses on an annual basis are 0.37% for this ETF, which makes it on par with most peer products in the space.
HYGV's 12-month trailing dividend yield is 8.31%.
Sector Exposure and Top Holdings
ETFs offer diversified exposure and thus minimize single stock risk, but it is still important to delve into a fund's holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
When you look at individual holdings, Cash accounts for about 0.93% of the fund's total assets, followed by Cloud Software Group Holdings Inc Callable Notes-6.50%-3-31-2029 (TIBX) and Athenahealth Group Inc Callable Notes Fixed 6.5%-6.50%-2-15-2030 (ATHENA).
Its top 10 holdings account for approximately 6.59% of HYGV's total assets under management.
Performance and Risk
So far this year, HYGV return is roughly 3.63%, and is down about -0.47% in the last one year (as of 05/08/2023). During this past 52-week period, the fund has traded between $38.86 and $44.41.
The ETF has a beta of 0.49 and standard deviation of 9.07% for the trailing three-year period. With about 973 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 $14.70 billion. USHY has an expense ratio of 0.15% and HYG charges 0.48%.
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
