Nearly 32% of CWB’s 93 holdings are rated below Baa and 27.5% are not rated, but a combined 38.5% are rated Baa or A. Top sector weights include 28.4% to technology, 17.6% to consumer non-cyclicals and 15.7% to financial services.
The benefits of convertible bonds are especially apparent in bad market years. In 2002, the stock market was down 22%, while the convertible bond market was down 8.5%. Investors should note CWB’s index does not convert its holdings into stock. Instead, the fund will hold convertible bonds to give investors exposure to the market similar to the way any other bond index would and will track the risk/return yield of its index. Either way, CWB offers an opportunity to stay in the bond game while generating decent returns in the face of rising rates.
SPDR Barclays Convertible Securities ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of LQD.