Hand-picking individual securities from an enormous fixed-income universe can be inefficient. That’s why AB developed a dynamic credit scoring model known as core score, which ranks investment-grade and high-yield corporate bonds by their attractiveness. Portfolio managers use these rankings to make better-informed investment decisions. Since the model’s inception, core score has reliably predicted the relative performance tier into which bonds ultimately fell (Display).
During this time, bonds assigned lower core scores generated lower average excess returns in the subsequent month, while bonds assigned higher core scores generated higher excess returns. Investment-grade and high-yield bonds in the highest core-score quintile generated average monthly excess returns of 32 basis points and 45 basis points, respectively.
