While convertibles are attractive rising rates options, they are not perfect. “Generally only lower rated companies issue convertible debt, so you have to live with a higher level of default risk. Yes, convertible bonds offer the best of both worlds… so long as the issuer doesn’t default,” writes David Merkel.
Still, CWB is does not really resemble a true junk bond ETF in either yield or credit quality. CWB’s 30-day SEC yield is 1.82%, or about 115 basis points below 10-year Treasuries. About 36% of the ETF’s holdings are rated A and Baa while 37.2% are rated below Baa and 27.3% are not rated, according to State Street data.
A combined two-thirds of CWB’s sector weight goes to technology, consumer non-cyclical and financial services. Top-10 holdings include issues from Wells-Fargo (NYSE: WFC), Bank of America (NYSE: BAC) and Gilead Sciences (NasdaqGM: GILD).
SPDR Barclays Convertible Securities ETF