An ETF that provides exposure to convertible bonds has gathered nearly $500 million so far this year from investors seeking capital appreciation and a sanctuary from rising interest rates.
SPDR Barclays Convertible Securities ETF (NYSEArca: CWB), which was launched in 2009, is the only exchange traded product for this asset class. The fund has grown to $1.5 billion of assets after seeing year-to-date inflows of $480 million, according to IndexUniverse data.
Holders of convertible bonds have the option to exchange for preferred stock. [Convert to Convertibles to Guard Against Rising Rates]
“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.”
CWB has delivered a total return of about 14% in 2013. [Convertible ETF Zooms to Lifetime High]
“Convertible bonds are a niche asset class that often gets overlooked by most investors,” says Morningstar ETF analyst Timothy Strauts. “Based on their track record, it would seem as though convertibles offer a compelling risk-adjusted return and could be a relatively less risky alternative to traditional equity investments.”
SPDR Barclays Convertible Securities ETF
