An ETF that invests in convertible securities and provides some shelter from rising interest rates recently broke out to its highest levels since listing over four years ago.
SPDR Barclays Convertible Securities ETF (NYSEArca: CWB) charges an expense ratio of 0.40% and currently pays a 30-day SEC yield of 2.06%.
“Convertibles tend to perform well in a rising-rate environment,” said David Mazza, head of ETF investment strategy at State Street Global Advisors, which manages CWB. “They’re hybrid securities with lower interest-rate sensitivity. They have exposure to the equity market and can do well versus other fixed-income options when rates rise.”
The ETF tracks the Barclays U.S. Convertible Bond >$500MM Index. State Street uses a sampling strategy, so the fund doesn’t hold every security in the benchmark.
Holders of convertible bonds have the option to exchange for preferred stock. [Convertibles ETF]
“The convertible bond acts as a powerful weapon for investors looking to get the potential upside of the equity markets while staying within the more cautious realm of fixed income,” according to a recent Financial Times report.
CWB has posted a total return of more than 20% for the trailing 12 months, according to Morningstar performance data.
The ETF has hauled in $417.5 million worth of inflows year to date, according to IndexUniverse. The fund, which was launched in April 2009, currently holds total assets of nearly $1.5 billion.
“Convertible securities tend to be subordinate to other debt securities issued by the same issuer. Also, issuers of convertible securities are often not as strong financially as issuers with higher credit ratings,” according to CWB’s prospectus. “Convertible securities generally provide yields higher than the underlying stocks, but generally lower than comparable non-convertible securities.”
SPDR Barclays Convertible Securities ETF