IndexIQ, begun trading the First High Yield Low Vol Bond ETF, the IQ S&P High Yield Low Volatility Bond ETF (NYSE Arca: HYLV), on Wednesday, February 15, 2017. HYLV is subadvised by MacKay Shields, a $95 billion fixed income boutique wholly owned by New York Life Investment Management (NYLIM). Here is a synopsis of the new ETF:

FUND INFORMATION:

FUND OBJECTIVE:
The IQ S&P High Yield Low Volatility Bond ETF seeks investment results that track (before fees and expenses) the price and yield performance of its underlying index, the S&P U.S. High Yield Low Volatility Corporate Bond Index.

REFERENCE INDEX:
The S&P U.S. High Yield Low Volatility Corporate Bond Index is comprised of U.S. dollar denominated high yield corporate bonds that have been selected in accordance with a rules-based methodology that seeks to identify securities that, in the aggregate, are expected to have lower volatility relative to the broad U.S. dollar denominated high yield corporate bond market. The Underlying Index is a market value weighted index comprised of bonds included in the S&P U.S. High Yield Corporate Bond Index that meet liquidity and risk-based selection criteria.

The Underlying Index is comprised of U.S. dollar denominated high yield corporate bonds of issuers domiciled in the U.S. and foreign countries classified as developed markets by the Index Provider. To be eligible for inclusion  in  the  Underlying  Index,  bonds  must  meet  the  following criteria:
(i) pay fixed-rate coupons;
(ii) have at least $400 million of outstanding face value;
(iii) have a remaining maturity of at least one month as of the rebalancing date; and
(v) have an average rating below investment grade by Moody’s Investors Service, Standard & Poor’s, and/or Fitch Ratings.
Eligible U.S. dollar denominated high yield corporate bonds are further screened for liquidity considerations based on their bond type, size, spread, duration and time since issuance.

Once the Underlying Index universe is defined based on the eligibility criteria, each bond is then ranked according to its marginal contribution to risk (MCR). MCR is a measurement of the amount of risk a security contributes to a portfolio of securities. MCR is calculated using a bond’s duration and the difference between the bond’s spread (the difference between the option-adjusted yield of the bond and the yield of a U.S. treasury security with a similar maturity) and a weighted average spread of the bonds in the index universe. In general, a bond with a higher MCR will add more credit risk to the overall portfolio than a bond with a lower MCR. After ranking all eligible bonds based upon their MCR, the Underlying Index selects for inclusion the 50 percent of bonds measured to have the least credit risk based on their MCR. A bond included in the Underlying Index must remain in the 60 percent of bonds measured to have the least credit risk based on its MCR to remain in the Underlying Index. The Underlying Index seeks to construct a portfolio of securities that has lower volatility than the U.S. dollar-denominated high yield bond universe through the selection of lower-risk bonds based on MCR. Once the bonds are selected for inclusion in the Underlying Index, they are weighted by market value.
The Underlying Index is rebalanced monthly and typically consists of 400 to 500 securities.

Index Top Holdings (02/01/17):

Useful Links:
HYLV Home Page

ETFtrack comment:
HYLV is the latest entry into the factor-based fixed income space by IndexIQ and NYLIM.  The fund joins the IQ Enhanced Core Bond U.S. ETF (NYSE Arca: AGGE) and IQ Enhanced Core Plus Bond U.S. 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 $330 million in assets.

Here is a comment from Jae Yoon, Senior Managing Director and Chief Investment Officer, New York Life Investment Management:
“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.”