VettaFi shifts bond indexes to equal-weight issuer baskets

At the ETF Ecosystem Unwrapped conference, Samarth Sanghavi, head of fixed income at VettaFi, described the firm’s approach to redesigning fixed-income indexes. He said the indexes use equal-weighted issuer baskets of roughly 200 names and an annual rebalancing schedule to limit turnover and reduce concentration in the largest borrowers.

VettaFi acquired the Credit Suisse bond indices last year and is using that historical data to test alternative index structures and offer broad beta exposure across the fixed-income market. Sanghavi said the acquisition provided a long live track record and the data needed to evaluate different index rules.

Market-cap weighting remains common in bond benchmarks, which concentrates exposure in companies with the most debt. Sanghavi noted that in a typical benchmark the top 10 issuers can make up about 13% of the index. To counter that pattern, VettaFi assigns equal weight across a defined set of issuers so every issuer carries the same share of the index.

“There is no bias as to which names you are holding,” Sanghavi noted, adding that the index lists issuer names and the available securities for portfolio managers to trade. The design aims to give managers transparency on the issuer mix rather than an index that tilts toward the largest debt issuers.

VettaFi changed the rebalancing cadence to address persistent turnover common in fixed income. The firm sets its core constituent list once a year and performs monthly maintenance to handle maturing securities, downgrades or rating changes. Sanghavi said the annual reset provides managers visibility into index makeup for the year and reduces the need for frequent buying and selling.

On capturing risk premia in rules-based formats, Sanghavi said the signals must be consistent and repeatable. He pointed to credit risk in the investment-grade market as an example, noting that spreads between BBB and A rated bonds typically compensate investors for added risk. He cited data showing that over the past three decades about 0.5% of companies rated BBB or higher have defaulted, which he described as evidence the market often pays premia that do not materialize into widespread defaults.

Sanghavi acknowledged limits during prolonged market stress. He warned that strategies tilting into lower investment-grade credit can underperform in extended downturns, though backtests to 2006 showed the firm’s enhanced-yield index generally outperformed in several major episodes and held up in sharp but short-lived shocks like the COVID-19 sell-off.

VettaFi framed the changes as intended to reduce issuer concentration, lower routine trading, and embed systematic exposure to credit premia within index formats designed for tradability and transparency.