Apple raised $17 billion in a record corporate bond sale on April 30, and those bonds are now starting to show up in fixed-income ETF portfolios, and possibly at the worst time.
ETFs linked to the Barclays U.S. Aggregate Bond Index already own Apple debt. These funds include the likes of the $15 billion iShares Core Total U.S. Bond Market ETF (AGG)—currently allocating less than 0.1 percent to Apple debt ranging in maturity from five to 30 years—and the $680 million SPDR Barclays Aggregate Corporate Bond ETF (LAG), which has 0.08 percent of its portfolio tied to Apple bonds.
In all, it seems that a handful of strategies already own a piece of that record-breaking bond sale. Apple’s debt issue—the first since 1996—included $14 billion in fixed-rate securities with maturities ranging from three to 30 years, and $3 billion in floating-rate notes.
The sale came a time of increased demand for fixed-income exposure that looks beyond the paltry yields in government-issued debt for income opportunities. Stronger post-credit-crisis corporate balance sheets have made company debt an appealing source of income for many investors, especially because, by and large, many of them yield more than equivalent similar-maturity Treasurys.
But the appeal of corporate debt may be dwindling as these bonds start to feel the backlash of investor concerns about the Federal Reserve's unwinding of monetary easing policies. After staging a strong performance last year, U.S. corporate bonds are starting to lose steam--year-to-date, U.S. corporate bond returns are now in negative territory after rallying nearly 10 percent in 2012.
Apple's 30-year bonds, for instance, have now fallen to just over 90 percent of face value, according to a Wall Street Journal article citing FactSet data. That's a loss from early May highs that amount to three years' worth of coupon income, the article said.
Some of the other strategies that now include Apple debt in their exposure include the $459 million Schwab U.S. Aggregate Bond ETF (SCHZ). SCHZ invests in a mix of Apple bond maturities, including three-year, 10-year and 30-year bonds for a total exposure that amounts to 0.05 percent of the overall portfolio.
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)—the most popular corporate bond fund on the market, with $23.7 billion in assets—also owns a piece of the action, allocating about 0.26 percent of its 1,094-bond portfolio to Apple bonds with a market value of some $60 million.
That allocation is currently split between five-year bonds that mature in May 2018, that yield 1.46 percent, and 10-year debt maturing in May 2023, currently yielding 3 percent, iShares data showed.
LQD, which currently offers one of the highest yield-to-maturity in the segment, is now yielding 3 percent—a reward for investors who are willing to take on the risk the fund’s tilt toward longer-dated-debt poses.
Apple debt can also be found in a number of SPDR corporate bond funds that include LAG—a fund that invests primarily in Treasurys and mortgage-backed securities—and a trio of maturity-focused SPDRs corporate debt funds.
Of those, the SPDR Barclays Intermediate Corporate Bond ETF (ITR) currently has the biggest allocation—0.40 percent split between five-year and 10-year bonds.
Both the SPDR Barclays Long Term Corporate Bond ETF (LWC) and its short-term counterpart, the SPDR Barclays Short Term Corporate Bond ETF (SCPB) also own Apple—each just under 0.3 percent of their respective portfolios.
The $186 million iShares Government/Credit Bond ETF (GBF), the only broad-market investment-grade U.S. debt portfolio that excludes securitized debt, now allocates 0.02 percent of its 694-holdings portfolio to 30-year Apple bonds yielding 4.37 percent.
Neither the $170 million Pimco Investment Grade Corporate Bond Index ETF (CORP)—a global-in-scope fund that holds debt from companies like AT'T, Goldman Sachs and Procter ' Gamble—or the Pimco Total Return ETF (BOND) own Apple debt.
That’s also the case for the $32 million PowerShares Fundamental Investment Grade Corporate Bond Portfolio (PFIG) or its $151 million international counterpart, the PowerShares International Corporate Bond Portfolio (PICB).
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