Fixed Income Factor Investing: An Approach to Rules-Based Index Construction

Traditional fixed income securities exhibit an asymmetric risk profile. For a typical fixed rate bond, the total return potential over the term of the security may be limited and largely a function of timely coupon payments and principal payment upon maturity of the bond. The investor’s downside risk, however, may be considerable with the potential for the issuer to default on its debt with diminished recovery value. We think this may help us minimize exposure to issuers with the greatest risk of deterioration and avoid securities with heightened credit risk. These indicators build upon the principles of Goldman Sachs Asset Management Fixed Income’s fundamental, bottom-up approach to credit selection, applied in a systematic and rules-based fashion. For the purposes of this paper, we focus on the Goldman Sachs Access Investment Grade Corporate Bond ETF, or GIGB, and the Goldman Sachs Access High Yield Corporate Bond ETF, or GHYB.


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