FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR)

ETF FlexShares Credit-Scored US Corporate Bond Index Fund: Summary

Profile: The FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR) is an ETF that tracks the Credit-Scored US Corporate Bond Index. The ETF invests primarily in investment-grade corporate bonds with a focus on creditworthiness. The fund utilizes a proprietary credit-scoring model to select bonds with higher credit quality and potential for outperformance, while maintaining comparable duration and yield to the benchmark index.

Objective: The fund's primary objective is to provide investors with high current income and capital appreciation through exposure to investment-grade U.S. corporate bonds, while emphasizing credit risk mitigation.

Issuer: SKOR is issued by Northern Trust, a global financial services company with a reputation for reliability and experience in the investment management industry. The management team has extensive experience in fixed income investing and portfolio construction.

Market Share: SKOR's market share within the investment-grade corporate bond ETF sector is approximately 0.2%. It is a smaller player compared to other bond ETFs, but its unique focus on credit scoring distinguishes it from competitors.

Total Net Assets: As of October 27, 2023, the total net assets of SKOR are approximately $589 million. This indicates a moderate size with potential for further growth.

Moat: The competitive advantages of SKOR include:

• Proprietary credit-scoring model: SKOR's unique approach to identifying high-quality bonds offers a potential for outperformance and risk reduction.
• Experienced management team: Northern Trust's expertise in fixed income management contributes to the fund's success.
• Targeted strategy: The focus on investment-grade corporate bonds with credit risk mitigation appeals to specific investor profiles seeking stability and income.

Financial Performance: Since its inception in March 2016, SKOR has delivered competitive returns compared to the Barclays US Corporate Bond Index. The fund has also shown lower volatility than its benchmark, indicating a moderate risk profile.

Benchmark Comparison: SKOR has consistently outperformed the Barclays US Corporate Bond Index on a risk-adjusted basis. The Sharpe Ratio of SKOR is higher than its benchmark, implying better returns relative to the level of risk taken.

Growth Trajectory: The demand for income-generating investment products is expected to grow, potentially benefiting fixed income ETFs like SKOR. Additionally, the increasing focus on credit quality among investors may act as a tailwind for its unique credit-scoring methodology.

Liquidity: SKOR's average daily trading volume is around 50,000 shares, indicating relatively good liquidity for an ETF of its size. The bid-ask spread is generally tight, reflecting efficient trading and low transaction costs.

Market Dynamics: Factors affecting SKOR's market environment include:

• Interest rate environment: Rising interest rates could put pressure on bond prices, including those in SKOR.
• Economic outlook: A weakening economy could impact corporate creditworthiness, potentially influencing the fund's performance.
• Market volatility: Increased market volatility can impact trading volumes and liquidity for fixed income ETFs.

Competitors: Key competitors of SKOR include:

• iShares Aaa-A Rated Corporate Bond ETF (QLTA): Market share 25.5%
• Vanguard Intermediate-Term Corporate Bond ETF (VCIT): Market share 18.4%
• SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB): Market share 8.7%

Expense Ratio: SKOR's expense ratio is 0.30%, which is considered competitive compared to similar bond ETFs.

Investment Approach and Strategy:

• Strategy: SKOR tracks the Credit-Scored US Corporate Bond Index, aiming to replicate its performance and provide exposure to a diversified portfolio of investment-grade corporate bonds.
• Composition: The fund primarily holds corporate bonds with a mix of maturities. The majority of holdings are rated A- or Aa by leading credit rating agencies, reflecting the focus on credit quality.

Key Points:

• Credit-focused approach: SKOR seeks to outperform through credit risk mitigation rather than maturity or sector bets.
• Experienced management: Northern Trust provides stability and expertise in portfolio construction.
• Competitive fees: SKOR's expense ratio is in line with similar offerings.
• Moderate growth prospects: The fund is well-positioned for a growing demand for income and risk management in fixed income investing.

Risks:

• Interest rate risk: Rising interest rates can adversely impact bond prices, reducing SKOR's value.
• Credit risk: Defaults or downgrades of underlying bonds can lead to losses.
• Market risk: General market downturns can affect SKOR's performance.
• Liquidity risk: Although relatively liquid, SKOR's trading volume could decline during volatile markets.

Who Should Consider Investing:

• Investors seeking current income with lower credit risk
• Individuals looking for portfolio diversification into investment-grade bonds
• Risk-averse investors focusing on capital preservation
• Those with moderate to long-term investment horizons

Fundamental Rating based on AI:

8/10

SKOR receives a score of 8 out of 10 based on AI-driven analysis. This rating considers various factors like its financial performance, risk profile, competitive advantages, and growth potential.

The rating acknowledges SKOR's unique credit-based approach, experienced management, and competitive fees. The potential for growth is recognized alongside moderate market risks and dependence on interest rate dynamics.

Resources and Disclaimers:

Data sources:

• FlexShares website
• Bloomberg Terminal
• Morningstar
• ETF.com

Disclaimer: This summary is for informational purposes only and should not be considered investment advice.