ETF issuer IndexIQ today launched a brand new fund that seeks to combine the lure of high yield bonds, but without the excess volatility typically associated with them.
The IQ S&P High Yield Low Volatility Bond ETF (NYSE:HYLV), which begins trading today, tracks the S&P U.S. High Yield Low Volatility Corporate Bond Index. This index falls under the highly popular “smart beta” category, and according to fund literature, “follows a rules-based, transparent approach to high yield bond investing.”
Behind the scenes, HYLV targets high yield corporate bonds from U.S. companies that exhibit relatively low volatility along with higher liquidity. It accomplishes this feat by looking for bonds with less credit risk, “as determined by a formula that combines a bond’s spread and duration into a measure called “Marginal Contribution to Risk” (MCR).” Using MCR has been found to lower the volatility of a bond portfolio and also lessen the exposure to potential defaults.
IndexIQ CEO Adam Patti commented via press release:
“With HYLV, as with AGGE and AGGP, we are bringing a new class of solutions to market — products that allow investors to boost the income generated by their bond portfolios while reducing risk and volatility. The launch of this fund is the latest step in our long term strategy, to engage our network of independent investment boutiques to build innovative solutions with investors’ and advisors’ investment goals in mind. We’re excited to bring HYLV to market, providing access to the combined expertise and breadth of our New York Life Investment Management’s world class offerings.”
We’ll be sure to circle back around with this interesting new product and apply our SMART Grade methodology to it once it gets several months of trading history under its belt.