There are approximately 60 corporate bond exchange traded funds holdings issues of varying credit quality on the market today.
That means it is easy for a few of those funds to slip through the cracks and that also means opportunity exists for income investors to find some hidden gems in the corporate bond ETF space. One of those hidden gems is the WisdomTree Strategic Corporate Bond Fund (NasdaqGM: CRDT).
CRDT, which debuted in January 2013, is actively managed in partnership with Western Asset Management. While active management has taken its lumps in recent years, corporate bonds stick out as a corner of the investment landscape where active can and does work.
“Through a combination of fundamental analysis and the ability to deviate from a mechanical investment process, active management may be able to help add value by avoiding deteriorating credits. In the past 10 years, avoiding the worst performing issuers (bottom 10%) in the Barclays U.S. Credit Index would have increased average annual performance by 1.1% per year. In a low-yield environment, potentially avoiding these underperforming issuers could have a significant impact on total returns,” according to WisdomTree.
CRDT, which is reasonably priced among active ETFs at 0.45% per year, has an effective duration of 5.71 years with a 30-day SEC yield of 3.24%. The fund’s credit quality tilts toward the investment-grade end of the spectrum. More than 31% of CRDT’s 67 holdings are rated BBB while another 30% are rated A and nearly 7% are rated AA. [Asset Allocation With WisdomTree ETFs]
Importantly, CRDT has delivered for investors since coming to market two and half years ago.
“Since its inception, CRDT has outperformed 94% of all corporate bond mutual funds and ETFs on a risk-adjusted basis (Sharpe Ratio) and 87% of all world bond funds on a similar basis,” according to a new research note by WisdomTree. “Looking at just the corporate bond ETF category, CRDT had the second-best Sharpe ratio (risk-adjusted returns) among 21 funds, ranking it in the top 95% of corporate bond ETFs since its inception and giving it the fifth-best absolute return.”
CRDT is a global fund, but the U.S. accounts for almost 61% of its geographic weight. At 12.8%, the U.K. is the ETF’s only other double-digit geographic weight. CRDT does feature light emerging markets exposure by way of Brazil and Russia, among others. [Hedge Rate Risk With These Unique Bond ETFs]
“Western Asset incorporates both top-down and disciplined bottom-up analysis in uncovering corporate bond opportunities in the United States and around the world. By taking a global view of credit, the team at Western is able to think strategically about what risks are ultimately worth taking,” according to WisdomTree.
WisdomTree Strategic Corporate Bond Fund