MIG and MBBB ETFs: Question & Answer
Read Time 6 MIN
- What are attractively valued bonds?
- What is the fair value of a corporate bond?
- What are the benefits of owning attractively valued bonds?
- Why use the Moody’s Analytics credit risk model?
- What is the methodology of the indices?
- Can you provide some examples of the types of bonds that are selected?
- What drives the outperformance of attractively valued bonds?
- How much outperformance is driven by duration?
- Does the outperformance from owning attractively valued bonds come from taking more risk?
- Risk/Reward (Nov 2020 – Oct 2024)
- Where can I find more information on the methodology and how attractively valued bonds performed historically?
- How can investors buy VanEck's MIG and MBBB ETFs?
Investment grade corporate bonds provide a yield pickup over risk-free U.S. Treasuries with limited credit risk. They are an attractive core fixed income allocation for many investors because of their relative safety, yield enhancement and diversification potential.
The VanEck Moody’s Analytics IG Corporate Bond ETF (MIG) seeks to track, as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Moody’s Analytics® US Investment Grade Corporate Bond Index while the VanEck Moody’s Analytics BBB Corporate Bond ETF (MBBB) seeks to track, as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Moody’s Analytics® US BBB Corporate Bond Index.
These indices identify the most attractively valued bonds based on their market spread relative to their fair value, a metric calculated by Moody’s Analytics.
What are attractively valued bonds?
We define attractively valued bonds as those offering higher compensation relative to their estimated risk and is measured by comparing their credit spread based on the market price of the bond versus fair value. Bonds with significant excess spread above fair value overcompensate investors relative to actual estimated credit risk.
What is the fair value of a corporate bond?
Fair value estimates the compensation investors should demand for the risk they are taking by holding a bond and is expressed as the “fair value spread.”
Moody’s Analytics calculates the fair value spread based on its expected probability of default, estimated recovery rate, maturity, issue size and other risk factors. It incorporates numerous data points, including a firm’s balance sheet and its equity price to calculate the forward-looking probability of default.
What are the benefits of owning attractively valued bonds?
Attractively valued bonds represent both attractive income potential as well as upside price potential as market spreads converge to fair value. A bond with a positive excess spread versus its fair value spread represents a value opportunity. Similarly, avoiding bonds that exhibit unattractive levels of excess spread provides the potential to outperform the broad market. Holding bonds with low or negative excess spread means that investors are not being adequately rewarded, and these bonds pose downside risk if spread widens as the market begins to price-in higher levels of risk.
Nazaren and Dwyer, Credit Risk Modeling of Public FIlms: EDF9, Moody's Analytics, June 2015.
Why use the Moody’s Analytics credit risk model?
There is significant dispersion of credit risk pricing within the corporate bond market which offers the ability to build diversified portfolios with alpha potential and Moody’s Analytics is the industry leader in credit risk modelling. Their models have won numerous industry awards, and over 1,000 of the world’s largest institutional investors (including banks, insurance companies, government institutions and asset managers) use their models to power credit risk and portfolio management decision making.
A model is only as good as its inputs and the assumptions that underlie it, and we believe that the quality and coverage of Moody’s Analytics data and the extensive research capabilities and resources dedicated to supporting the model have contributed to Moody’s Analytics industry-leading role.
What is the methodology of the indices?
- The index provider buckets the starting universe of corporate bonds into financials and non-financials, and then by duration.
- It then screens for the liquid and priceable opportunity set of bonds.
- Each bond’s fair value spread is compared to the market spread to determine the most attractively valued bonds.
- The index maintains exposure to the top 40% most attractively valued bonds and removes bonds that exhibit an excessively high probability of being downgraded to high yield.
Can you provide some examples of the types of bonds that are selected?
Case study #1: Weyerhaeuser Company
Weyerhaeuser’s 4.0% 04/15/2030 bond entered the index in October 2022, as it exhibited an attractive excess spread in relation to all other bonds at that time. Its market spread gradually tightened towards fair value through April 2024, at which point it left the index. Although the bond still exhibited positive excess spread, the index focuses on bonds with the highest excess spread in the broad U.S. investment grade corporate market, and more attractive opportunities emerged.
Source: ICE Data Indices, Moody’s Analytics, VanEck as of 10/31/2024. Index performance is not illustrative of fund performance. It is not possible to invest directly in an index. Please see index definitions included in disclosures below.
Case study #2: Kraft Heinz Foods Company
Kraft’s 6.875% 01/26/2039 bond entered the index in March 2023, after being upgraded from high yield to investment grade, as it exhibited higher excess spread relative to its universe.
Source: ICE Data Indices, Moody’s Analytics, VanEck as of 10/31/2024. Index performance is not illustrative of fund performance. It is not possible to invest directly in an index. Please see index definitions included in disclosures below.
What drives the outperformance of attractively valued bonds?
Key factors that have driven outperformance relative to the broader corporate bond market:
- Price Gains - as bond spreads compress, prices tend to rise.
- Risk Management - avoids bonds that don’t offer enough compensation for the risks involved.
Attractively valued bonds have also provided yields that are in line, or higher than, the broad market.
As a result, this approach has delivered stronger total returns compared to standard benchmarks.
| Indices | Price Return (%) | Income Return (%) | Total Return (%) | Out/Underperformance (%) | |
| 1Y | Attractively Valued IG Corporates | 9.50 | 4.92 | 14.42 | 0.79 |
| Broad IG Benchmark | 8.71 | 4.93 | 13.63 | ||
| Attractively Valued BBB Corporates | 10.09 | 5.24 | 15.32 | 0.69 | |
| Broad BBB Benchmark | 9.36 | 5.27 | 14.63 | ||
| 3Y | Attractively Valued IG Corporates | -5.19 | 4.08 | -1.11 | 0.70 |
| Broad IG Benchmark | -5.76 | 3.95 | -1.81 | ||
| Attractively Valued BBB Corporates | -5.30 | 4.33 | -0.97 | 0.49 | |
| Broad BBB Benchmark | -5.74 | 4.28 | -1.46 |
Source: ICE Data Indices as of 10/31/2024. Index performance is not illustrative of fund performance. It is not possible to invest directly in an index. Please see index definitions included in disclosures below.
How much outperformance is driven by duration?
Valuations within the corporate bond universe are best compared against bonds with similar durations and in similar sectors. The indices compare and select bonds within the same sector (financials and non-financials) and within the same duration range to avoid unintended biases (e.g., an overweight to low duration bonds).
Does the outperformance from owning attractively valued bonds come from taking more risk?
No. Looking at the one-year expected default frequency, a metric estimating the likelihood of the company defaulting over the following 12 months, both indices display lower levels of default risk. Although the risk of default in investment grade bonds is generally very low, even these small differences are reflected in credit spreads and total returns.
Source: VanEck, Moody’s Analytics as of 10/31/2024. Index performance is not illustrative of fund performance. It is not possible to invest directly in an index. Please see index definitions included in disclosures below.
Overall, analyzing bonds through the lens of fair value allows investors to buy undervalued bonds and avoid overpriced bonds, which have demonstrated a better risk/reward profile than the broad markets.
Risk/Reward (Nov 2020 – Oct 2024)
Source: Morningstar. Index performance is not illustrative of fund performance. It is not possible to invest directly in an index. Please see index definitions included in disclosures below.
Where can I find more information on the methodology and how attractively valued bonds performed historically?
More detailed information on the methodology can be found here, and this blog describes how attractively valued bonds have performed historically.
How can investors buy VanEck's MIG and MBBB ETFs?
Learn more here: VanEck Moody’s Analytics IG Corporate Bond ETF and VanEck Moody’s Analytics BBB Corporate Bond ETF.
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Disclosures:
MIG/MBBB indices were launched in November of 2020.
MIG Index/Attractively Valued IG Corporates: MVIS® Moody’s Analytics® US Investment Grade Corporate Bond Index – includes investment grade corporate bonds that have attractive valuations and a lower probability of being downgraded to high yield compared to other investment grade bonds.
MBBB Index/Attractively Valued BBB Corporates: MVIS® Moody’s Analytics® US BBB Corporate Bond Index – includes BBB rated corporate bonds that have attractive valuations and a lower probability of being downgraded to high yield compared to other BBB rated bonds.
Broad IG Benchmark: ICE BofA US Corporate Index (UG IG Index) tracks the performance of US dollar denominated investment grade corporate debt publicly issued and settled in the US domestic market.
Broad BBB Benchmark: ICE BofA BBB US Corporate Index (BBB Index) is a subset of ICE BofA US Corporate Index including all securities rated BBB1 through BBB3, inclusive.
An investment in the VanEck Moody’s Analytics IG Corporate Bond ETF (MIG) and VanEck Moody’s Analytics BBB Corporate Bond ETF (MBBB ) may be subject to risks which include, among others, investing in European issuers, foreign securities, foreign currency, BBB-rated bond, credit, interest rate, restricted securities, financials sector, information technology sector, consumer discretionary sector, consumer staples sector, market, operational, call, sampling, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, data, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the fund. The Funds’ assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Shares of the Funds are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH. MarketVector Indexes GmbH makes no representation or warranty, express or implied, to the owners of Shares of the Funds or any member of the public regarding the advisability of investing in securities generally or in the Shares of the Funds particularly or the ability of the Index to track the performance of its respective securities market. The Index is determined and composed by MarketVector Indexes GmbH without regard to the Adviser or the Shares of the Funds. MarketVector Indexes GmbH has no obligation to take the needs of the Adviser or the owners of Shares of the Funds into consideration in determining or composing the respective Index. MarketVector Indexes GmbH is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Shares of the Funds are to be converted into cash. MarketVector Indexes GmbH has no obligation or liability in connection with the administration, marketing or trading of the Shares of the Funds.
MARKETVECTOR INDEXES GMBH DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN AND MARKETVECTOR INDEXES GMBH SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. MARKETVECTOR INDEXES GMBH MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF SHARES OF THE FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX, OR THE FUND OR ANY DATA INCLUDED THEREIN. MARKETVECTOR INDEXES GMBH MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MARKETVECTOR INDEXES GMBH HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Adviser has entered into a licensing agreement with Moody's Analytics to use certain Moody's Analytics credit risk models, data and trademarks. Moody’s Analytics® is a registered trademark of Moody’s Analytics, Inc. and/or its affiliates and is used under license.
The Funds are not sponsored, promoted, sold or supported in any manner by Moody’s Analytics nor does Moody’s Analytics offer any express or implicit guarantee or assurance either with regard to the results of using the Moody’s Analytics trademark or data at any time or in any other respect. Moody’s Analytics has no obligation to point out errors in the data to third parties including but not limited to investors and/or financial intermediaries of the Funds. The licensing of data or the Moody’s Analytics trademark for the purpose of use in connection with the Funds does not constitutes a recommendation by Moody’s Analytics to invest capital in the Funds nor does it in any way represent an assurance or opinion of Moody’s Analytics with regard to any investment in this financial instrument. Moody’s Analytics bears no liability with respect to the Funds or any security.
The VanEck Moody's Analytics IG Corporate ETF and VanEck Moody's Analytics BBB Corporate ETF, which are based on the US IG Index and BBB Index (respectively), are not issued, sponsored, endorsed, sold or marketed by ICE Data, and ICE Data makes no representation regarding the advisability of investing in such products.
© Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation
Related Funds
Disclosures:
MIG/MBBB indices were launched in November of 2020.
MIG Index/Attractively Valued IG Corporates: MVIS® Moody’s Analytics® US Investment Grade Corporate Bond Index – includes investment grade corporate bonds that have attractive valuations and a lower probability of being downgraded to high yield compared to other investment grade bonds.
MBBB Index/Attractively Valued BBB Corporates: MVIS® Moody’s Analytics® US BBB Corporate Bond Index – includes BBB rated corporate bonds that have attractive valuations and a lower probability of being downgraded to high yield compared to other BBB rated bonds.
Broad IG Benchmark: ICE BofA US Corporate Index (UG IG Index) tracks the performance of US dollar denominated investment grade corporate debt publicly issued and settled in the US domestic market.
Broad BBB Benchmark: ICE BofA BBB US Corporate Index (BBB Index) is a subset of ICE BofA US Corporate Index including all securities rated BBB1 through BBB3, inclusive.
An investment in the VanEck Moody’s Analytics IG Corporate Bond ETF (MIG) and VanEck Moody’s Analytics BBB Corporate Bond ETF (MBBB ) may be subject to risks which include, among others, investing in European issuers, foreign securities, foreign currency, BBB-rated bond, credit, interest rate, restricted securities, financials sector, information technology sector, consumer discretionary sector, consumer staples sector, market, operational, call, sampling, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, data, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the fund. The Funds’ assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Shares of the Funds are not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH. MarketVector Indexes GmbH makes no representation or warranty, express or implied, to the owners of Shares of the Funds or any member of the public regarding the advisability of investing in securities generally or in the Shares of the Funds particularly or the ability of the Index to track the performance of its respective securities market. The Index is determined and composed by MarketVector Indexes GmbH without regard to the Adviser or the Shares of the Funds. MarketVector Indexes GmbH has no obligation to take the needs of the Adviser or the owners of Shares of the Funds into consideration in determining or composing the respective Index. MarketVector Indexes GmbH is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Shares of the Funds are to be converted into cash. MarketVector Indexes GmbH has no obligation or liability in connection with the administration, marketing or trading of the Shares of the Funds.
MARKETVECTOR INDEXES GMBH DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN AND MARKETVECTOR INDEXES GMBH SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. MARKETVECTOR INDEXES GMBH MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ADVISER, OWNERS OF SHARES OF THE FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX, OR THE FUND OR ANY DATA INCLUDED THEREIN. MARKETVECTOR INDEXES GMBH MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MARKETVECTOR INDEXES GMBH HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The Adviser has entered into a licensing agreement with Moody's Analytics to use certain Moody's Analytics credit risk models, data and trademarks. Moody’s Analytics® is a registered trademark of Moody’s Analytics, Inc. and/or its affiliates and is used under license.
The Funds are not sponsored, promoted, sold or supported in any manner by Moody’s Analytics nor does Moody’s Analytics offer any express or implicit guarantee or assurance either with regard to the results of using the Moody’s Analytics trademark or data at any time or in any other respect. Moody’s Analytics has no obligation to point out errors in the data to third parties including but not limited to investors and/or financial intermediaries of the Funds. The licensing of data or the Moody’s Analytics trademark for the purpose of use in connection with the Funds does not constitutes a recommendation by Moody’s Analytics to invest capital in the Funds nor does it in any way represent an assurance or opinion of Moody’s Analytics with regard to any investment in this financial instrument. Moody’s Analytics bears no liability with respect to the Funds or any security.
The VanEck Moody's Analytics IG Corporate ETF and VanEck Moody's Analytics BBB Corporate ETF, which are based on the US IG Index and BBB Index (respectively), are not issued, sponsored, endorsed, sold or marketed by ICE Data, and ICE Data makes no representation regarding the advisability of investing in such products.
© Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation