Nomura’s HFIX ETF Brings a 35-Year High Yield Playbook to Investors

How HFIX Finds Its “Strong Horses”

HFIX invests primarily in below-investment-grade corporate debt, with at least 80% of its net assets plus any borrowings for investment purposes normally allocated to high yield bonds.

Rather than tracking an index, NCRAM builds the portfolio through fundamental credit research.

Its “Strong Horse” approach looks for companies the team believes can carry their debt through economic cycles, generate cash, and reduce their debt over time.

To find them, NCRAM considers factors including business strength, cash flow generation, market position, management experience, and financial risk.

The approach is primarily bottom-up, although the managers also look across the high yield market for areas they believe are undervalued.

HFIX also has flexibility beyond conventional high yield bonds.

Its high yield investments can include fixed, variable and floating-rate debt, bank loans, convertibles and distressed bonds, among other securities.

Up to 20% of net assets can also be invested outside the fund’s core high yield allocation, including in investment-grade bonds, bank loans, preferred securities, and other similar instruments.

The fund can invest internationally as well, including in emerging markets, giving NCRAM a broad opportunity set for applying its credit research.

Why Investors May Consider HFIX

The appeal of HFIX comes down to income potential, active credit selection, and flexibility.

High yield bonds typically offer more income than investment-grade corporate bonds or government debt because investors take on greater credit risk.

That makes identifying the underlying borrowers particularly important.

HFIX gives NCRAM the flexibility to seek opportunities across issuers and industries while using its credit research to weigh business and financial risks.

The managers also diversify holdings across issuers and industries in an effort to mitigate some of the risks associated with high yield bonds.

But the additional income potential comes with additional risk.

Below-investment-grade issuers are more vulnerable to financial stress and default, while some high yield investments can become less liquid during difficult market conditions.

The strategy therefore puts significant weight on NCRAM’s ability to identify companies that can continue carrying their debt through changing economic environments.

"We are continuing to expand our ETF platform as a key part of our growth strategy in the US wealth market," said Anthony Caruso, Head of ETFs and Product Strategy at Nomura Asset Management International. "This launch leverages the deep institutional expertise and leadership that has defined Nomura for decades. NCRAM represents some of the longest-tenured managers in high yield, and we are excited to make this differentiated capability accessible to a broader investor base through the ETF wrapper."

For investors, HFIX packages NCRAM’s long-running high yield approach into an ETF, with its “Strong Horse” credit research at the center of the strategy.

The fund carries a 0.45% annual management fee and intends to distribute income monthly, with capital gains, if any, distributed at least annually.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.