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IndexIQ launches high yield low vol bond ETF


ETF sponsor IndexIQ has launched the IQ S&P High Yield Low Volatility Bond ETF (HYLV), describing it as the next generation of factor-based fixed income ETFs. 

HYLV is sub-advised by MacKay Shields, a USD95 billion fixed income boutique wholly owned by New York Life Investment Management (NYLIM).
HYLV is designed to track the S&P US High Yield Low Volatility Corporate Bond Index (the Index), which follows a rules-based, transparent approach to high yield bond investing.  The Index is designed to capture the performance of US high yield corporate bonds with the potential for lower relative volatility and greater liquidity.

The Index works by identifying high yield bonds that are deemed to have 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). Bonds with a higher MCR are deemed to have higher credit risk and are excluded from the investment universe. Research from NYLIM, IndexIQ’s parent company, and Standard and Poor’s has found that this methodology typically lowered the volatility of returns and exposure to defaults.

HYLV is the latest entry into the factor-based fixed income space by IndexIQ and NYLIM.  The fund joins the IQ Enhanced Core Bond US ETF (NYSE Arca: AGGE) and IQ Enhanced Core Plus Bond US ETF (NYSE Arca: AGGP), which were launched in May of 2016. AGGE and AGGP were the first ETFs to bring momentum-based investing to the fixed income ETFs and collectively have approximately USD330 million in assets.
Senior Managing Director and Chief Investment Officer, New York Life Investment Management, Jae Yoon, says: “HYLV is the outcome of a collaboration between IndexIQ; the Strategic Asset Allocation and Solutions division of New York Life Investment Management; MacKay Shields, a leader in fixed income investing; and Standard and Poor’s, one of the world’s most respected index providers. Together we’re giving investors and advisors tools that will help them add income generation potential to their portfolios in what is still a historically low rate environment, while addressing the concerns about volatility that often accompany high yield exposures.”
Chief Executive Officer at IndexIQ Adam Patti comments: “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.”

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