As high yield bond ETFs see a resurgence in interest, it’s important that investors fully understand the vast array of products available on the market.
High yield bond ETFs are on track for a record month. The asset class has seen $11.9 billion in inflows during the month. That marks the greatest monthly inflow ever for the sector, according to Bloomberg.
See more: “Higher Interest Rates Could Support Bond Investments for Years”
Most investors choose to allocate to traditional active discretionary or passive high yield bond ETFs. However, scientific active fixed income investing provides a third option to investors looking to potentially achieve superior investment returns.
According to Harbor, a scientific investment process is evidence-based, data-driven, economically intuitive, and grounded in the historical scientific method with targeted research and development at each step of the investment process.
How Scientific Investing Applies to High Yield Bond ETFs
Scientific asset manager BlueCove, which subadvises the Harbor Scientific Alpha High-Yield ETF (SIHY), applies the scientific method to accessing a broad set of data, developing/testing proprietary insights, portfolio construction, and trading. Among the benefits of a scientific process is the potential ability to generate alpha uncorrelated with markets/traditional discretionary processes, according to Harbor.
To summarize, SIHY seeks to provide total returns to investors. The subadvisor employs a structured investment process that uses a proprietary model-based framework in the security selection of high yield bonds.
The specific goal of delivering strong investment outcomes for investors led to the creation of BlueCove. The firm researches, developed, and implements state-of-the-art scientific investment processes applicable to fixed income investment management.
Importantly, scientific active fixed income exposure does not charge more than other funds on the market. SIHY charges a total expense ratio of 48 basis points. This is 1 basis point less than its largest high yield bond ETF Morningstar category peer.
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Investors should carefully consider the investment objectives, risks, charges and expenses of a Harbor fund before investing. To obtain a summary prospectus or prospectus for this and other information, visit harborcapital.com or call 800-422-1050. Read it carefully before investing.For the most current performance, holdings and fees, please click: SIHY
Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. The ETFs are new and have limited operating history to judge.
SIHY Risks: All investments involve risk including the possible loss of principal. Fixed income securities fluctuate in price in response to various factors, including changes in interest rates, changes in market conditions and issuer-specific events, and the value of your investment in the Fund may go down. There is a greater risk that the Funds will lose money because they invest in below- investment grade fixed income securities and unrated securities of similar credit quality (commonly referred to as “high-yield securities” or “junk bonds”). These securities are considered speculative because they have a higher risk of issuer default, are subject to greater price volatility and may be illiquid. Because the Funds may invest in securities of foreign issuers, an investment in the Funds is subject to special risks in addition to those of U.S. securities. These risks include heightened political and economic risks, greater volatility, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, possible sanctions by government bodies of other countries and less stringent investor protection and disclosure standards of foreign markets.
The views expressed herein may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice or purchase a particular security.
A basis point is one hundredth of 1 percentage point.
Alpha is a measure of risk (beta)-adjusted return.
BlueCove Limited is a third-party subadvisor to the Harbor Scientific Alpha High-Yield ETF.
This article was prepared as Harbor Funds paid sponsorship with VettaFI.
Foreside Fund Services, LLC is the Distributor of the Harbor ETFs.
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