FlexShares Credit-Scored US Corporate Bond Index Fund | research notes

FlexShares Credit-Scored US Corporate Bond Index Fund: A Comprehensive Introduction

Overview

FlexShares Credit-Scored US Corporate Bond Index Fund (NYSE Arca: LQD) is an exchange-traded fund (ETF) that provides investors with exposure to a broad range of investment-grade corporate bonds in the United States. The fund utilizes a unique credit-scoring methodology to select its holdings, aiming to enhance risk-adjusted returns and mitigate potential credit losses.

Investment Strategy

LQD invests in a diversified portfolio of US corporate bonds with a minimum credit rating of BBB-. The fund's credit-scoring methodology assigns a score to each issuer based on various factors, including financial stability, industry position, and management quality. Issuers with higher credit scores are more heavily weighted in the portfolio, while those with lower scores receive less exposure.

This approach aims to:

• Identify bonds with a higher probability of timely payment of interest and principal
• Enhance portfolio resilience to economic downturns and credit events
• Minimize losses and preserve capital

Fund Composition

LQD's portfolio is composed of bonds from a wide range of industries, including:

• Financials (banks, insurance companies)
• Industrials (manufacturers, technology companies)
• Consumer staples (food and beverage companies)
• Utilities (electric, gas, water providers)

The fund's duration, which measures its sensitivity to changes in interest rates, is typically around 6-8 years. This moderate duration provides a balance between yield potential and interest rate risk.

Performance

Since its launch in 2010, LQD has delivered consistent returns to investors. Its annualized return over the past 10 years has been approximately 4.5%, with low volatility compared to similar funds. The fund has also outperformed the broad corporate bond market index during periods of market stress.

Benefits of Investing in LQD

• Diversified Exposure: Access to a broad range of investment-grade corporate bonds, reducing single-issuer risk.
• Risk Management: Credit-scoring methodology mitigates potential credit losses and enhances portfolio resilience.
• Consistent Returns: Historically has delivered stable returns with low volatility.
• Transparency: Traded on an exchange, providing real-time pricing and high liquidity.
• Tax Efficiency: As an ETF, LQD offers tax advantages compared to mutual funds, such as reduced capital gains distributions.

Who Should Invest in LQD?

LQD is suitable for investors seeking:

• Exposure to the US corporate bond market with a focus on credit quality
• Income generation and capital preservation
• Diversification within a fixed income portfolio
• A balance between yield potential and interest rate risk

Conclusion

FlexShares Credit-Scored US Corporate Bond Index Fund (LQD) is a well-managed ETF that provides investors with a diversified and risk-managed approach to corporate bond investing. Its credit-scoring methodology enhances portfolio resilience and aims to deliver consistent returns over the long term. LQD is an attractive investment option for individuals seeking income and diversification within their fixed income portfolios.

Business Model of FlexShares Credit-Scored US Corporate Bond Index Fund

The FlexShares Credit-Scored US Corporate Bond Index Fund (ticker: CWB) is an exchange-traded fund (ETF) that tracks the performance of a basket of US corporate bonds. The fund uses a credit-scoring methodology to select bonds, which means that it invests in bonds that are rated as having a low risk of default.

The fund's business model is based on providing investors with a diversified exposure to the US corporate bond market with a focus on credit quality. The fund's low expense ratio (0.12%) also makes it an attractive option for investors looking to reduce their overall investment costs.

Advantages over Competitors

The FlexShares Credit-Scored US Corporate Bond Index Fund has several advantages over its competitors, including:

• Credit-scoring methodology: The fund's credit-scoring methodology helps to reduce the risk of default by only investing in bonds that are rated as having a low risk of default.
• Diversification: The fund is diversified across a wide range of issuers and sectors, which helps to reduce the risk of any single issuer or sector having a negative impact on the overall performance of the fund.
• Low expense ratio: The fund's low expense ratio makes it an attractive option for investors looking to reduce their overall investment costs.

Overall

The FlexShares Credit-Scored US Corporate Bond Index Fund is a well-managed and cost-effective option for investors looking to gain exposure to the US corporate bond market with a focus on credit quality. The fund's credit-scoring methodology, diversification, and low expense ratio make it an attractive option for both individual and institutional investors.

FlexShares Credit-Scored US Corporate Bond Index Fund

Overview

• Ticker Symbol: BSCO
• Fund Type: Exchange-traded fund (ETF)
• Investment Objective: To track the performance of the Credit-Scored US Corporate Bond Index
• Launch Date: June 19, 2013

Investment Strategy

The fund invests in U.S. corporate bonds that meet the following criteria:

• Rated investment grade (BBB- or higher by Standard & Poor's or Fitch Ratings, or Baa3 or higher by Moody's Investors Service)
• Minimum credit score of 60 based on the proprietary FlexShares Credit-Scoring Model
• Minimum term to maturity of one year

The fund uses an active management approach to select bonds with higher credit quality and lower risk within the investment grade universe.

Index Benchmark

• Credit-Scored US Corporate Bond Index
• The index is designed to measure the performance of a diversified portfolio of U.S. corporate bonds that meet the fund's investment strategy criteria.

Portfolio Characteristics

As of March 31, 2023:

• Total Net Assets: $2.4 billion
• Number of Holdings: Approximately 1,100
• Average Effective Duration: 7.3 years
• Average Credit Quality: 90.9% (AAA-rated)

Performance

• Inception Date (June 19, 2013) to March 31, 2023: 5.42% annualized return
• 1-Year Return: 2.63%
• 3-Year Return: 3.99%
• 5-Year Return: 4.28%

Expense Ratio

• 0.25%

Additional Features

• Monthly dividend distribution
• Tax-efficient structure (ETF shares are generally eligible for preferred stock treatment for U.S. tax purposes)
• ESG (environmental, social, and governance) considerations are incorporated into the fund's investment process

Outlook

The FlexShares Credit-Scored US Corporate Bond Index Fund offers investors the following advantages:

• Access to a diversified portfolio of investment-grade corporate bonds
• Active management focusing on higher credit quality and lower risk
• Potential for competitive returns and lower volatility compared to non-investment grade bonds
• Tax efficiency and transparency

However, investors should also consider the following risks:

• Interest rate risk: Bond prices are sensitive to changes in interest rates, which can impact the fund's value.
• Credit risk: The fund invests in corporate bonds, which carry the risk of default by the issuer.
• Liquidity risk: ETFs are subject to market fluctuations and may trade at a premium or discount to their net asset value (NAV).

Overall, the FlexShares Credit-Scored US Corporate Bond Index Fund is a suitable investment for investors seeking exposure to investment-grade corporate bonds with enhanced credit quality. It provides a balance of potential return and risk, with a focus on preserving capital.

Similar Companies to FlexShares Credit-Scored US Corporate Bond Index Fund:

1. iShares Core U.S. Corporate Bond ETF (AGG)

• Homepage: https://www.ishares.com/us/products/239611/ishares-core-us-corporate-bond-etf
• Review: AGG is a low-cost, broad-market corporate bond ETF that provides exposure to a diversified portfolio of investment-grade corporate bonds. It offers a convenient and efficient way to gain exposure to the corporate bond market.

2. SPDR Portfolio High Yield Bond ETF (SPHY)

• Homepage: https://www.spdrfunds.com/en/etf/spdr-portfolio-high-yield-bond-etf?symbol=SPHY
• Review: SPHY is a high-yield bond ETF that provides exposure to a diversified portfolio of non-investment-grade corporate bonds. It offers potential for higher returns but also carries a higher risk level.

3. PIMCO Investment Grade Corporate Bond Index Fund (PIGB)

• Homepage: https://www.pimco.com/en-us/funds/etfs/pimco-investment-grade-corporate-bond-index-fund
• Review: PIGB is an actively managed corporate bond ETF that focuses on investment-grade bonds. It aims to provide a balance of yield and risk, with a focus on income generation.

4. Vanguard Total Corporate Bond Market ETF (BND)

• Homepage: https://investor.vanguard.com/etf/profile/overview/bnd
• Review: BND is a broad-market corporate bond ETF that offers exposure to a wide range of investment-grade and high-yield bonds. It provides a diversified and cost-effective way to gain exposure to the corporate bond market.

5. Invesco Senior Loan ETF (BKLN)

• Homepage: https://www.invesco.com/etf/product-information/product-detail?ticker=bkl
• Review: BKLN is a senior loan ETF that provides exposure to a diversified portfolio of loans made to below-investment-grade companies. It offers potential for higher returns but also carries a higher risk level.

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

Company History

FlexShares Credit-Scored US Corporate Bond Index Fund is a passively managed exchange-traded fund (ETF) offered by Northern Trust Asset Management. It was launched on March 24, 2015.

Investment Objective

SKOR seeks to provide investment results that correspond generally with the price and yield performance of the Bloomberg Credit-Scored US Corporate Bond Index (the "Index").

Index Methodology

The Index is a market-value-weighted index that tracks the performance of investment-grade U.S. corporate bonds with a minimum credit rating of BBB- from a nationally recognized statistical rating organization (NRSRO). The bonds are selected based on their credit quality, liquidity, and maturity.

Investment Strategy

SKOR invests in a portfolio of bonds that are constituents of the Index. The ETF uses a sampling strategy, which involves investing in a representative subset of the Index to achieve similar risk and return characteristics.

Key Features

• Credit Quality: SKOR invests in bonds with a minimum credit rating of BBB-.
• Diversification: The ETF provides broad exposure to the U.S. corporate bond market.
• Income Generation: SKOR pays regular distributions representing the interest income earned by the underlying bonds.

Performance

SKOR has delivered returns that have generally tracked the performance of the Index. The ETF has provided positive returns in most years since its inception, with some fluctuations due to market conditions.

Fees

SKOR has an expense ratio of 0.10% per year. This fee covers the costs of fund management, operations, and administration.

Comparison to Competitors

SKOR is a competitive ETF in the investment-grade U.S. corporate bond market. It offers a low expense ratio, broad diversification, and a credit quality focus. Other comparable ETFs include:

• iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
• Vanguard Total Corporate Bond Market Index Fund ETF (BND)
• SPDR Bloomberg High Yield Bond ETF (JNK)

Conclusion

FlexShares Credit-Scored US Corporate Bond Index Fund (SKOR) is a passively managed ETF that provides investors with diversified exposure to the investment-grade U.S. corporate bond market. The ETF offers a low expense ratio, broad diversification, and a credit quality focus.

Last Three Years:

• 2020:
  • March 12: NAV per share dropped to $9.41 due to market volatility during the COVID-19 pandemic.
  • June 24: Fund announced a distribution of $0.23 per share.
  • December 31: NAV per share recovered to $10.02.
• 2021:
  • March 31: NAV per share reached a high of $10.83.
  • June 25: Fund announced a distribution of $0.28 per share.
  • December 31: NAV per share closed at $10.49.
• 2022:
  • June 24: Fund announced a distribution of $0.27 per share.
  • December 31: NAV per share closed at $9.87.

Recent Timelines:

• 2023:
  • January 13: NAV per share dropped to $9.54 due to market volatility following interest rate hikes by the Federal Reserve.
  • February 28: Fund announced a distribution of $0.26 per share.
  • March 17: NAV per share recovered to $9.76.

Exceptional Bond Fund for Risk-Averse Investors: FlexShares Credit-Scored US Corporate Bond Index Fund

As a seasoned investor seeking a low-risk bond fund, I stumbled upon FlexShares Credit-Scored US Corporate Bond Index Fund, and I am thoroughly impressed with its performance and features.

Investment Strategy that Pays Off:

The fund employs a unique investment strategy that focuses on credit-scored corporate bonds. By investing in bonds issued by companies with strong creditworthiness, the fund effectively mitigates credit risk, a common concern among bond investors. This cautious approach has consistently delivered stable and attractive returns.

Strong Historical Performance:

Over the past several years, FlexShares Credit-Scored US Corporate Bond Index Fund has consistently outperformed its benchmark, the Bloomberg US Corporate High Yield Index. Its稳健收益率令投资者感到安心.

Diversified Portfolio:

The fund invests in a broad range of corporate bonds, providing investors with diversification benefits. This reduces exposure to any single issuer or industry, further enhancing risk mitigation.

Low Expense Ratio:

In addition to its strong performance, the fund boasts a highly competitive expense ratio. This means that more of your investment goes towards returns, rather than fund management costs.

Excellent Customer Service:

FlexShares, the fund's management company, provides exemplary customer service. Their knowledgeable and responsive team is always available to assist investors with any questions or concerns.

Overall, FlexShares Credit-Scored US Corporate Bond Index Fund is an exceptional choice for risk-averse investors seeking consistent income and capital preservation. Its unique investment strategy, strong historical performance, diversified portfolio, and low expense ratio make it an ideal addition to any bond portfolio.

Unlock the Potential of Your Fixed Income Portfolio with FlexShares Credit-Scored US Corporate Bond Index Fund

In today's volatile market, it's more crucial than ever to invest in fixed income securities that provide both strong returns and risk mitigation. Enter FlexShares Credit-Scored US Corporate Bond Index Fund, an innovative solution designed to meet the needs of discerning investors.

The Advantages of Credit Scoring

The Fund employs a unique credit-scoring approach that evaluates the creditworthiness of individual bonds. By assigning each bond a score based on factors such as issuer fundamentals, industry outlook, and macroeconomic data, the Fund strategically invests in bonds with higher credit ratings and lower default risk.

Consistent Returns with Reduced Volatility

This rigorous screening process has resulted in a consistent track record of strong returns with reduced volatility. The Fund has consistently outperformed broad market benchmarks and provides investors with a valuable diversification tool to stabilize their overall portfolios.

Investment Grade Portfolio

The Fund's portfolio primarily consists of investment-grade bonds, which are widely recognized for their lower risk and higher stability. By focusing on higher-quality bonds, the Fund provides investors with a solid foundation for their fixed income investments.

Tax Efficiency

The Fund is structured as an exchange-traded fund (ETF), which offers tax efficiency compared to traditional mutual funds. ETFs trade like stocks, allowing for greater flexibility and potential tax savings for long-term investors.

Access to a Diversified Portfolio

With a portfolio of hundreds of individual bonds, the Fund provides investors with instant access to a diversified investment pool. This diversification reduces single-issuer risk and enhances the overall stability of the portfolio.

Expert Management

The FlexShares Credit-Scored US Corporate Bond Index Fund is actively managed by a team of experienced investment professionals. Their in-depth knowledge of the credit markets ensures that the Fund remains well-positioned to capture market opportunities and mitigate risks.

Join the FlexShares Community

To learn more about the FlexShares Credit-Scored US Corporate Bond Index Fund and how it can benefit your investment portfolio, visit our website: [Website Link]

Don't miss out on the opportunity to enhance your fixed income strategy. Invest in the FlexShares Credit-Scored US Corporate Bond Index Fund today and experience the power of credit scoring.

Main Supplier (or Upstream Service Provider) of FlexShares Credit-Scored US Corporate Bond Index Fund

Name: Northern Trust Global Investments

Website: https://www.northerntrust.com/

Detailed Description:

Northern Trust Global Investments (NTGI) is the main supplier and upstream service provider for the FlexShares Credit-Scored US Corporate Bond Index Fund (the "Fund"). NTGI provides a range of services to the Fund, including:

• Investment Management: NTGI is responsible for managing the Fund's portfolio of corporate bonds. The portfolio is designed to track the Credit Suisse Liquid Investment Grade Index, which measures the performance of U.S. corporate bonds with investment-grade credit ratings.
• Custody and Administration: NTGI acts as the custodian for the Fund's assets and provides administrative services such as trade execution, settlement, and recordkeeping.
• Risk Management: NTGI provides risk management services to the Fund, including portfolio monitoring, stress testing, and risk reporting.
• Compliance and Regulatory Oversight: NTGI ensures that the Fund complies with all applicable laws and regulations, including those governing investment companies.

NTGI is a leading global investment manager, with over $1 trillion in assets under management. The company offers a wide range of investment products and services to institutional and retail clients worldwide. NTGI is headquartered in Chicago, with offices in major financial centers around the world.

Additional Information:

• The FlexShares Credit-Scored US Corporate Bond Index Fund is an actively managed exchange-traded fund (ETF) that seeks to provide investors with exposure to the investment-grade corporate bond market.
• The Fund is listed on the New York Stock Exchange Arca under the ticker symbol "LKOR."
• The Fund's expense ratio is 0.25%.

Main Customer (Downstream Company) of FlexShares Credit-Scored US Corporate Bond Index Fund

FlexShares Credit-Scored US Corporate Bond Index Fund (FLCR) is an exchange-traded fund (ETF) managed by Northern Trust. It tracks the performance of the Northern Trust Credit-Scored US Corporate Bond Index, which is composed of US dollar-denominated, investment-grade corporate bonds.

The main customers (downstream company) of FLCR are investors seeking exposure to the US corporate bond market. These investors may include:

• Institutional investors: Such as pension funds, insurance companies, and endowments.
• Financial advisors: Who invest on behalf of their clients.
• Individual investors: Who are looking for a convenient and diversified way to access the corporate bond market.

Name and Website of Downstream Company

The name and website of a specific downstream company that invests in FLCR are not publicly available. However, you can find information about FLCR's performance, holdings, and other details on the Northern Trust website:

https://www.northerntrust.com/investment/products/etfs/flexshares-credit-scored-us-corporate-bond-index-fund-flcr

Key Revenue Stream: Investment advisory fees

Estimated Annual Revenue: $12.7 million

Details:

FlexShares Credit-Scored US Corporate Bond Index Fund (FLXE) is a passively managed exchange-traded fund (ETF) that seeks to provide investment results that correspond generally to the performance of the Solactive FlexShares Credit-Scored US Corporate Bond Index. The fund invests in a diversified portfolio of U.S. corporate bonds.

The fund's primary source of revenue is investment advisory fees. These fees are charged by the fund's investment adviser, Northern Trust Investments, Inc. The fees are calculated as a percentage of the fund's net assets. As of December 31, 2021, the fund's annual investment advisory fee was 0.15%.

Based on the fund's assets under management (AUM) of $845.3 million as of December 31, 2021, the estimated annual revenue from investment advisory fees is:

$845.3 million * 0.15% = $12.7 million

It's important to note that the fund's revenue may vary from year to year depending on its AUM and the performance of the underlying index.

Key Partners of FlexShares Credit-Scored US Corporate Bond Index Fund

Name: Northern Trust Asset Management

Website: https://www.northerntrustassetmanagement.com/

Role:

• Fund Manager: Northern Trust Asset Management is responsible for the overall management of the FlexShares Credit-Scored US Corporate Bond Index Fund, including investment decisions, portfolio construction, and risk management.
• Administrator: Northern Trust Asset Management also serves as the administrator for the fund, handling daily operations, recordkeeping, and shareholder services.
• Transfer Agent: Northern Trust Asset Management is the transfer agent for the fund, facilitating the transfer of shares between shareholders.

Name: FTSE Russell

Website: https://www.ftserussell.com/

Role:

• Index Provider: FTSE Russell is the provider of the underlying index that the FlexShares Credit-Scored US Corporate Bond Index Fund tracks. This index measures the performance of US corporate bonds that meet specific credit quality and other eligibility criteria.

Name: Morgan Stanley

Website: https://www.morganstanley.com/

Role:

• Distribution Agent: Morgan Stanley acts as the distribution agent for the FlexShares Credit-Scored US Corporate Bond Index Fund, helping to distribute the fund's shares to investors through financial advisors and other channels.

Name: State Street Bank and Trust Company

Website: https://www.statestreet.com/

Role:

• Custodian: State Street Bank and Trust Company acts as the custodian for the assets of the FlexShares Credit-Scored US Corporate Bond Index Fund, ensuring their safekeeping and accounting.

Name: MSCI

Website: https://www.msci.com/

Role:

• Index Provider: MSCI is the provider of the credit-scoring methodology used in the underlying index that the FlexShares Credit-Scored US Corporate Bond Index Fund tracks. This methodology helps assess the creditworthiness of corporate bonds and categorize them into different credit tiers.

Key Cost Structure of FlexShares Credit-Scored US Corporate Bond Index Fund

Expense Ratio: 0.09% (approximately $9 per $10,000 invested annually)

Additional Costs:

Management Fees:

• None

Distribution and Service Fees:

• None

Other Expenses:

• Legal and accounting fees: $10,000-$15,000 annually
• Administrative and operational expenses: $5,000-$10,000 annually

Estimated Annual Cost:

• For a $10,000 investment: $14-$24
• For a $100,000 investment: $140-$240
• For a $1,000,000 investment: $1,400-$2,400

Key Note:

• The expense ratio is a percentage of the fund's average daily net assets and includes all operating expenses of the fund, excluding interest expenses and any acquired fund fees and expenses.
• The estimated annual cost is based on the fund's current expense ratio and assumes that the fund's assets remain relatively stable throughout the year.
• Actual expenses may vary from the estimates provided.

Additional Information:

• The fund's investment objective is to provide investment results that correspond generally to the performance of the Bloomberg U.S. Corporate High Yield Very Liquid Credit Scored Index.
• The fund invests primarily in high-yield corporate bonds that have been scored based on their creditworthiness.
• The fund is actively managed, meaning that the portfolio manager has discretion to select and weight the securities within the fund.

Sales Channels and Estimated Annual Sales of FlexShares Credit-Scored US Corporate Bond Index Fund

Sales Channels:

• Financial Advisors (50%)
• Institutional Investors (40%)
• Direct-to-Consumer (10%)

Estimated Annual Sales:

• $10 billion

Breakdown of Sales Channels:

Financial Advisors (50%):

• FlexShares Credit-Scored US Corporate Bond Index Fund is primarily sold through financial advisors who recommend the fund to their clients as a core fixed income holding. Advisors appreciate the fund's high credit quality, attractive yield, and low expenses.

Institutional Investors (40%):

• Pension funds, insurance companies, and other institutional investors use FlexShares Credit-Scored US Corporate Bond Index Fund as a cost-effective way to gain exposure to the US corporate bond market with a focus on credit-worthiness. The fund's liquidity and transparency make it an attractive option for large-scale investments.

Direct-to-Consumer (10%):

• Individual investors can purchase FlexShares Credit-Scored US Corporate Bond Index Fund directly through retail brokerage platforms or the fund's website. The fund's low minimum investment and ease of access make it accessible to a wide range of investors.

Factors Driving Sales:

• High Credit Quality: The fund invests in a portfolio of investment-grade corporate bonds, providing investors with a high degree of credit protection.
• Attractive Yield: The fund's high yield relative to comparable fixed income investments makes it an attractive option for income-oriented investors.
• Low Expenses: The fund has a low expense ratio, which reduces the cost of investing and enhances returns over the long term.
• Transparency and Liquidity: The fund's index-based approach and daily trading provide investors with transparent pricing and easy access to their investments.
• Market Shift: The increasing popularity of ESG investing is driving demand for funds that align with investors' values. FlexShares Credit-Scored US Corporate Bond Index Fund's focus on environmental, social, and governance factors makes it an attractive option for socially responsible investors.

Customer Segments

FlexShares Credit-Scored US Corporate Bond Index Fund targets the following customer segments:

• Individual investors: Retail investors seeking exposure to U.S. corporate bonds with varying credit qualities.
• Institutional investors: Pension funds, insurance companies, and other institutions looking to diversify their fixed income portfolios.
• Financial advisors: Advisors who want to provide their clients with a diversified and credit-focused investment option.
• Mutual funds and ETFs: Funds and ETFs seeking to complement their existing fixed income holdings.

Estimated Annual Sales

The estimated annual sales for FlexShares Credit-Scored US Corporate Bond Index Fund are not publicly disclosed. However, the fund's assets under management (AUM) can provide an indication of its popularity and sales.

As of March 31, 2023, the fund had approximately $4.8 billion in AUM. This indicates that the fund has been successful in attracting investors and generating sales.

Factors Driving Sales

Several factors contribute to the sales success of FlexShares Credit-Scored US Corporate Bond Index Fund:

• Diversification: The fund provides exposure to a wide range of U.S. corporate bonds with varying credit qualities, allowing investors to diversify their fixed income investments.
• Credit-scoring: The fund uses a credit-scoring system to evaluate the risk of individual bonds, which helps investors make informed decisions about their investments.
• Passive management: The fund is passively managed, which typically results in lower fees and expenses compared to actively managed funds.
• Tax efficiency: The fund is structured as an exchange-traded fund (ETF), which can provide tax advantages for investors.

Competitive Landscape

FlexShares Credit-Scored US Corporate Bond Index Fund competes with several other funds and ETFs that offer similar investment exposure. Some notable competitors include:

• iShares Core U.S. Corporate Bond ETF (AGG)
• Vanguard Total Corporate Bond Market Index Fund ETF (BND)
• SPDR Bloomberg High Yield Bond ETF (JNK)

Overall

FlexShares Credit-Scored US Corporate Bond Index Fund has established a strong track record of sales and AUM growth. Its focus on diversification, credit-scoring, and passive management has resonated with investors seeking a diversified and credit-focused fixed income investment. The fund's competitive landscape is significant, but it continues to attract investors due to its unique combination of features.

Value Proposition of FlexShares Credit-Scored US Corporate Bond Index Fund

The FlexShares Credit-Scored US Corporate Bond Index Fund (ticker: FLCR) is an exchange-traded fund (ETF) that tracks the Credit Suisse Credit-Scored US Corporate Bond Index. This index is composed of US dollar-denominated, investment-grade corporate bonds that have been scored based on their creditworthiness.

The fund's value proposition is as follows:

• High yield potential: The fund invests in corporate bonds that have been issued by companies with strong credit ratings. This means that the fund has the potential to generate a high yield, while still maintaining a low level of risk.
• Diversification: The fund invests in a wide range of corporate bonds, which helps to reduce the risk of any one bond defaulting.
• Low cost: The fund has a low expense ratio of 0.15%. This means that investors can keep more of their returns.
• Tax efficiency: The fund is structured as an ETF, which means that it is tax-efficient. This means that investors can defer paying taxes on their capital gains until they sell their shares.

Who is the fund right for?

The fund is right for investors who are looking for a high-yield, diversified, and tax-efficient investment. The fund is also a good option for investors who are looking for a low-cost way to invest in corporate bonds.

Risks

The fund is subject to the following risks:

• Credit risk: The fund invests in corporate bonds, which are subject to the risk of default.
• Interest rate risk: The fund's NAV will decline if interest rates rise.
• Liquidity risk: The fund may not be able to sell its bonds quickly or at a fair price in a declining market.

Conclusion

The FlexShares Credit-Scored US Corporate Bond Index Fund is a high-yield, diversified, and tax-efficient investment. The fund is a good option for investors who are looking for a low-cost way to invest in corporate bonds. However, investors should be aware of the risks involved in investing in corporate bonds before investing in the fund.

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

Credit Risk:

FLXC invests primarily in investment-grade corporate bonds rated BBB- or higher by S&P Global Ratings (or an equivalent rating from another nationally recognized statistical rating organization). While investment-grade bonds are considered less risky than non-investment-grade bonds, they still carry credit risk. If a bond issuer defaults on its obligations, the value of the fund may decline.

Interest Rate Risk:

FLXC is exposed to interest rate risk because its underlying bonds are fixed-income securities whose value fluctuates with changes in interest rates. If interest rates rise, the fund's net asset value (NAV) may decline.

Liquidity Risk:

FLXC is an exchange-traded fund (ETF) that trades on the secondary market. However, there is no guarantee that there will always be a ready market for the fund's shares, especially during periods of market volatility. If investors cannot sell their shares at a desired price, they may incur losses.

Concentration Risk:

FLXC invests in a large number of bonds, but its holdings are concentrated in a small number of issuers. As a result, the fund's performance may be significantly affected by the financial performance of these issuers.

Management Risk:

FLXC is managed by Northern Trust Asset Management, a reputable investment firm. However, the fund's performance may suffer if the management team makes poor investment decisions.

Expense Ratio:

FLXC has an annual expense ratio of 0.20%, which is considered average for an ETF. Expenses can reduce the fund's potential returns.

Other Risks:

• Inflation risk: The fund's returns may be eroded by inflation if the underlying bonds fail to keep pace with the rate of inflation.
• Currency risk: The fund may be exposed to currency risk if the underlying bonds are denominated in foreign currencies different from the fund's base currency.
• Tax risk: Distributions from the fund may be subject to income or capital gains taxes, which may reduce an investor's return.

Overall, FLXC is a well-diversified credit-scored corporate bond ETF that provides investors with exposure to the US corporate bond market. However, like any investment, it carries risks that should be carefully considered before investing.