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

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

Profile

FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR) is an exchange-traded fund (ETF) that invests in investment-grade U.S. corporate bonds. The fund tracks the Credit-Scored US Corporate Bond Index and uses a proprietary credit-scoring model to select its holdings. SKOR focuses on high-quality bonds with a minimum credit rating of BBB- and targets a duration of 4-7 years.

Objective

SKOR's primary goal is to provide investors with exposure to the performance of the U.S. corporate bond market while emphasizing credit quality and risk management.

Issuer

Northern Trust Asset Management is the issuer of SKOR.

• Reputation: Northern Trust has a strong reputation as a leading global asset manager with over $1.4 trillion in assets under management.
• Reliability: The firm has a long history of managing fixed-income investments and a proven track record in ETF development.
• Management: The ETF is managed by an experienced team of portfolio managers and analysts specializing in fixed-income investments.

Market Share and Total Net Assets

• Market Share: SKOR's market share within the U.S. corporate bond ETF space is relatively small, less than 1%.
• Total Net Assets: However, it boasts over $3.7 billion in assets under management (as of October 26, 2023).

Moat

SKOR's competitive advantages include:

• Unique Credit-Scoring Based Strategy: The proprietary credit-scoring model aims to select high-quality bonds and potentially enhance risk-adjusted returns.
• Experienced Management Team: Northern Trust's expertise in fixed-income management provides investors with confidence in the selection and management of the portfolio.
• Low Management Fees: SKOR's expense ratio is relatively low compared to other corporate bond ETFs in its category.

Financial Performance

• Since inception in 2015, SKOR has delivered a positive average annual return.
• The fund has generally outperformed its benchmark index, demonstrating the effectiveness of its credit-scoring strategy.
• It has also exhibited lower volatility compared to the broader corporate bond market, indicating a focus on managing risk.

Growth Trajectory

The U.S. corporate bond market is expected to experience moderate growth in the coming years. However, rising interest rates may pose a challenge for bond prices.

Liquidity

• Average Trading Volume: SKOR has a healthy average daily trading volume, indicating its liquidity.
• Bid-Ask Spread: The bid-ask spread is relatively narrow, suggesting low transaction costs for investors.

Market Dynamics

• Economic Indicators: Economic growth, inflation levels, and interest rate trends influence the corporate bond market.
• Sector Growth Prospects: Demand for corporate bonds is driven by the growth prospects of the underlying companies and industries.
• Current Market Conditions: Market sentiment and volatility can impact bond prices and portfolio returns.

Competitors

• iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD): LQD is the largest and most liquid corporate bond ETF, with over $50 billion in assets under management and an expense ratio of 0.15%.
• Vanguard Intermediate-Term Corporate Bond ETF (VCIT): VCIT offers broad exposure to the U.S. corporate bond market with an expense ratio of 0.04%.
• SPDR Bloomberg Barclays Intermediate Term Corporate Bond ETF (IET): IET provides a similar investment profile to SKOR, with an expense ratio of 0.14%.

Expense Ratio

SKOR's expense ratio is 0.15%, which is on par with other comparable corporate bond ETFs.

Investment Approach and Strategy

• Strategy: SKOR aims to track the Credit-Scored US Corporate Bond Index, which consists of investment-grade corporate bonds selected based on a proprietary credit-scoring model.
• Composition: The portfolio primarily holds U.S. corporate bonds with maturities ranging from 1 to 10 years and a credit rating of BBB- or higher.

Key Points

• High-quality investment-grade U.S. corporate bond exposure
• Proprietary credit-scoring model focusing on enhanced risk-adjusted returns
• Lower volatility compared to broader corporate bond market
• Experienced management team from Northern Trust
• Competitive expense ratio

Risks

• Market Risk: Changes in interest rates, inflation, and economic conditions can negatively affect bond prices.
• Credit Risk: Companies issuing bonds may default on their payments, leading to potential losses for the fund.
• Liquidity Risk: While SKOR is a liquid ETF, there may be limited trading opportunities in certain market conditions.

Who Should Consider Investing

Investors seeking:

• Exposure to high-quality U.S. corporate bonds
• A focus on credit quality and risk management
• Potential for enhanced risk-adjusted returns
• A relatively low-cost ETF

Fundamental Rating Based on AI

Based on an AI-powered analysis of financial health, market position, and future prospects, SKOR receives a rating of 8 out of 10.

This rating is supported by:

• The fund's strong performance track record and consistent outperformance of its benchmark.
• Northern Trust's expertise and experience in fixed-income management.
• The unique credit-scoring model that aims to select higher-quality bonds with lower default risk.

However, investors should consider the potential for market risks and credit risks associated with corporate bonds.

Resources and Disclaimers

• Northern Trust Asset Management: https://www.northerntrust.com/investment-management
• ETF Database: https://etfdb.com/

Disclaimer: The information provided here is for general knowledge and informational purposes only and does not constitute professional financial advice. It is essential to conduct thorough research and seek guidance from a financial advisor before making any investment decisions.