In order to construct and maintain Invesco Indexing’s fixed income indexes, data is collected on thousands of bonds globally. Enhancements recently have been made to the data collection process resulting in a broader set of securities available for consideration as part of the overall investable universe. More specifically, the change increases the size of the investable universe for the USD Corporate Bond and USD High Yield Corporate Bond family of Nasdaq BulletShares® indexes. Invesco Indexing has examined the impact of the expanded investable universe on each of the BulletShares’ individual maturity years. In some cases, the additional securities have a minor impact on name count and index turnover, while in other cases the impact is more notable.
Invesco Indexing will be incorporating the expanded universe into the index construction process beginning with the October 2018 month-end index rebalance. While the team recognizes the importance of market representativeness in its indexes, it also is sensitive to the impact of additional turnover on invested portfolios based on the indexes. Therefore, the team will take a measured approach to the inclusion of additional securities, in some cases phasing in the additional securities over successive, regularly scheduled monthly index rebalances. As an overarching philosophy, for cases in which securities will be added to the indexes over more than one month, the team will add the largest bonds first in an effort to best represent the market as quickly as possible. For indexes that are expected to experience low turnover (5% or less), all new bonds will be added in the first monthly rebalance. For indexes with moderate levels of expected turnover (between 5% and 60%), the turnover will be spread equally over three monthly rebalance cycles. For indexes with high levels of expected turnover (>60%) a monthly cap of 20% turnover will be applied at each monthly rebalance until all new bonds are incorporated in the index. Any turnover resulting from the expansion of the investable universe will be in addition to the turnover incurred as part of the normal monthly rebalancing process.
The following tables contain estimates of the total and monthly turnover.
Nasdaq BulletShares® USD Corporate Bond Indexes:
| Index Year | # Bonds Added | Total Turnover |
|---|---|---|
| 2018 | 0 | 0% |
| 2019 | 19 | 4% |
| 2020 | 41 | 11% |
| 2021 | 35 | 8% |
| 2022 | 41 | 11% |
| 2023 | 60 | 21% |
| 2024 | 16 | 6% |
| 2025 | 28 | 11% |
| 2026 | 3 | 1% |
| 2027 | 60 | 32% |
| 2028 | 0 | 0% |
Turnover by index weight:
| Oct 2018 | Nov2018 | Dec2018 | Jan2019 | Feb 2019 | Mar 2019 |
|---|---|---|---|---|---|
| 4% | |||||
| 6% | 6% | ||||
| 4% | 4% | ||||
| 6% | 6% | ||||
| 7% | 7% | 7% | |||
| 6% | |||||
| 6% | 6% | ||||
| 1% | |||||
| 11% | 11% | 11% | |||
Nasdaq BulletShares® USD High Yield Corporate Bond Indexes:
| Index Year | # Bonds Added | Total Turnover |
|---|---|---|
| 2018 | 1 | 4% |
| 2019 | 3 | 2% |
| 2020 | 10 | 5% |
| 2021 | 13 | 5% |
| 2022 | 19 | 5% |
| 2023 | 39 | 13% |
| 2024 | 28 | 13% |
| 2025 | 89 | 50% |
| 2026 | 78 | 115% |
| 2027 | 23 | 47% |
| 2028 | 0 | 0% |
Turnover by index weight:
| Oct 2018 | Nov2018 | Dec2018 | Jan2019 | Feb 2019 | Mar 2019 |
|---|---|---|---|---|---|
| 4% | |||||
| 2% | |||||
| 5% | |||||
| 5% | |||||
| 5% | |||||
| 5% | 5% | 3% | |||
| 5% | 5% | 3% | |||
| 17% | 17% | 17% | |||
| 20% | 20% | 20% | 20% | 20% | 20% |
| 16% | 16% | 16% | |||
One of the primary goals of indexes delivered by Invesco Indexing is to ensure the most complete and accurate representation of the market segment reflected in those indexes. Improving the investable universe coverage for the Nasdaq BulletShares® USD Corporate Bond and USD High Yield Corporate Bond Index families enhances their representativeness, improves index diversification, and provides more thorough coverage of the available market of bonds in each maturity year.
For further information, please contact indexsupport@invesco.com.
Kind regards,
Invesco Indexing LLC