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Is FlexShares Credit-Scored US Corporate Bond ETF (SKOR) a Strong ETF Right Now?

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Designed to provide broad exposure to the Investment Grade Corporate Bond ETFs category of the market, the FlexShares Credit-Scored US Corporate Bond ETF (SKOR - Free Report) is a smart beta exchange traded fund launched on 11/12/2014.

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.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Non-cap weighted indexes try to choose stocks that have a better chance of risk-return performance, which is based on specific fundamental characteristics, or a mix of other such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is managed by Flexshares, and has been able to amass over $451.84 million, which makes it one of the average sized ETFs in the Investment Grade Corporate Bond ETFs. SKOR seeks to match the performance of the Northern Trust Credit-Scored US Corporate Bond Index before fees and expenses.

The Northern Trust US Corporate Bond Quality Value Index measures the performance of a diversified universe of intermediate maturity, US - dollar denominated bonds of companies with investment grade credit quality, favourable valuations and enhanced short-term and long-term solvency.

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 SKOR are 0.15%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 4.77%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

Looking at individual holdings, Cash accounts for about 0.82% of total assets, followed by Citigroup Inc Callable Notes Variable 25/may/2034-6.17% (C - Free Report) and Jpmorgan Chase &no.38; Co Callable Notes Variable-1.58%-4-22-2027 (JPM - Free Report) .

The top 10 holdings account for about 3.25% of total assets under management.

Performance and Risk

The ETF has added roughly 4.39% and it's up approximately 11.36% so far this year and in the past one year (as of 10/24/2024), respectively. SKOR has traded between $45.37 and $49.21 during this last 52-week period.

SKOR has a beta of 0.23 and standard deviation of 5.11% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 1788 holdings, it effectively diversifies company-specific risk.

Alternatives

FlexShares Credit-Scored US Corporate Bond ETF is a reasonable option for investors seeking to outperform the Investment Grade Corporate Bond ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB - Free Report) tracks Bloomberg Barclays Intermediate U.S. Corporate Index and the Vanguard Intermediate-Term Corporate Bond ETF (VCIT - Free Report) tracks Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. SPDR Portfolio Intermediate Term Corporate Bond ETF has $9.51 billion in assets, Vanguard Intermediate-Term Corporate Bond ETF has $50.35 billion. SPIB has an expense ratio of 0.04% and VCIT charges 0.04%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Investment Grade Corporate 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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