Analyzing Two Smart Beta Bond ETFs

By Clayton FreskStadion Money Management Portfolio Manager

There has been a bit of publicity recently surrounding the impressive performance of, and the massive flows into, investment grade corporate bond ETFs.

However, on the flip side of this is concern over some weakening technical and fundamentals of the asset class. Investment grade issuance has been high and the credit quality of the underlying issuers is weakening. For many investors, moving out of the asset class may not be an option. However, given a number of fundamental and issuer weighted ETFs in the market in the Investment Grade Corporate space, some of these concerns could be mitigated via the smart beta offerings.

In the following, I will dig into two different alternatively weighted ETFs that focus on the broad space:

  • CBND – SPDR Barclays Issuer Scored Corporate Bond
  • WFIG – WisdomTree Fundamental US Corporate Bond

There are other ETFs that focus on investment grades corporates, which include:

  • PFIG – PowerShares Fundamental Investment Grade Corporate Bond
  • SKOR – FlexShares Credit-Scored US Corporate Bond

However, these ETFs focus on the intermediate part of the IG market (i.e., 10 years and in). While these may prove to be powerful replacements for those looking at replacing intermediate corporate exposure, for this analysis I focus on the broad names only.

Here are some quick stats on the ETFs themselves:


One initial takeaway is that the assets and trading volume in these names are currently dwarfed by their larger traditionally weighted counterparts. However, adoption in the smart beta fixed income has knowingly been slow, but, given some of the aforementioned concerns, use of these names could increase as the smart beta revolution continues.

Starting with the broad names, I will run a comparison against the Barclays US Corporate Bond Index (LUAC) to see how characteristics may differ. Generally, the overall duration and spread exposure do not differ dramatically, with the biggest difference being CBND running about a year shorter in duration at 6.5 years, versus WFIG and the index at about 7.5 years. This difference is housed on the long end of the curve, which is illustrated in the key rate chart below.


Next, I will look at the difference in rating exposure using the Bloomberg Composite rating.