Plenty of fixed income exchange traded funds have been bandied about as options for investors looking to guard against rising interest rates.
Few can lay claim to the results of the SPDR Barclays Convertible Securities ETF (NYSEArca: CWB) and for that reason, the recent action in CWB is worth considering.
On Thursday, CWB gained 0.8% on volume that was nearly five times the daily average. Entering Thursday’s session, CWB had taken $300 million in new assets this year. Assuming the activity in the ETF Thursday was primarily of a bullish nature, and it appears to be, another roughly $100 million could be added to CWB’s year-to-date inflows. The ETF had $2.41 billion in assets under management as of April 2, according to State Street data.
Convertible bonds are hybrid securities that have a penchant for performing well even as interest rates rise. That explains CWB racing to all-time highs last year as 10-year Treasury yields spiked. The ETF surged 20.5% in 2013 as the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) tumbled 13.4%. [Convert to a Convertible Bond ETF]
“Convertibles are negatively correlated to U.S. Treasuries and broad fixed income benchmarks such as the Barclays U.S. Aggregate,” State Street Global Advisors Vice President and Head of Research David Mazza told ETF Trends last month. “Adding U.S. convertible securities to a portfolio with traditional fixed income may increase risk-adjusted returns, improve the portfolio’s drawdown and decrease its interest rate risk.” [Convertibles ETF Holds Tesla Bonds]