FlexShares, the tenth-largest US exchange-traded fund issuer better known for its suite of “smart-beta” and self-indexed funds, recently launched a US-focused fixed-income fund that puts the spotlight on the middle-maturity offerings.
Northern Trust’s ETF-unit unveiled the FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR), an intermediate-dated bond-fund that focuses on investment-grade corporate bonds with maturities ranging from two to 10 years.
SKOR tracks the Northern Trust Credit-Scored US Corporate Bond Index, an enhanced beta index developed by the fund’s own index shop that aims to lower various systematic and idiosyncratic risks.
To include a corporate bond into the portfolio, the new fund first screens potential issues for firm-specific quality characteristics such as profitability, solvency, strength in management efficiency, credit ratings etc to lower default probability. The index constituents must have at least $500 million outstanding, which helps the fund to eliminate smaller, illiquid issues and help improve the overall transparency profile.
About 65 percent of the fund’s 118 holdings are rated AA or A by Standard & Poor’s, indicating moderate-to-low credit and default risk. The top holdings include Bank of America (4.17 percent), Morgan Stanley (3.32 percent), Citigroup Inc (2.92 percent) and IBM (2.47 percent).
At the sector level, SKOR is tilted toward financial services with a 46.62 percent allocation, followed consumer staples & discretionary issues with 14.56 percent asset allocation. Industrial companies corner 14.49 percent of total assets while technology, telecom and media get 12.28 percent. Bonds issued by the energy sector lie at the bottom of the stack with 12.25 percent allocation.
The fund has weighted-average maturity of 5.29 years and a weighted-average effective duration of 4.67 years, indicating moderate levels of interest rate risk.
The corporate bond space is already fairly crowded with iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD) leading the race with more than $18.4 billion in assets. SKOR is also likely to face competition from the iShares Intermediate Credit Bond (CIU) and the Intermediate-Term Corporate Bond Index Fund (VCIT).
SKOR has a net annual expense ratio of 0.22 percent.
Disclosure: No holdings
Contact Ulli