ETF Spotlight on the SPDR Barclays Convertible Securities ETF (CWB) , part of an ongoing series.
Assets : $2.89 billion
Objective : The Barclays U.S. Convertible Securities ETF tries to reflect the performance of the Barclays U.S. Convertible Bond > $500MM Index, which is comprised of U.S. convertible securities with outstanding issue sizes greater than $500 million.
Holdings : Top holdings include Wells Fargo Company 7.5 12/31/2049 4.5%, Gilead Sciences Inc 1.625 05/01/2016 3.5%, Bank of America Corp 7.25 12/31/2049 3.3%, Intel Corp 3.25 08/01/2039 3.1% and Wellpoint Inc. 2.75 10/14/2042 2.26%.
What You Should Know :
State Street Global Advisors sponsors the fund.
CWB has a 0.40% expense ratio.
The ETF has 96 holdings and the top ten components make up 26.4% of the overall portfolio.
Sector allocations include technology 37.2%, consumer non-cyclical 16.6%, finance 14.9%, consumer cyclical 6.8%, utility 5.7%, communications 4.7%, energy 4.7%, basic industry 4.5%, capital goods 4.4% and transportation 0.7%.
Credit quality breakdown includes Aaa 0.3%, A 8.8%, Baa 26.7%, below Baa 34.2% and not rated 29.9%.
The fund’s portfolio has an average maturity of 13.6 years.
CWB shows a 3.24% 12-month yield.
The ETF is down 0.6% over the past month, up 3.9% over the last three months and up 8.5% year-to-date.
The fund is up 3.7% above its 200-day exponential moving average.
Convertible bonds, or cocos, are securities that can be exchanged, at the option of the holder, for a specific number of shares of the issuer’s preferred stock or common stock.
In the corporate capital hierarchy, convertibles are senior to equities but subordinate to traditional bonds.
“Individual convertible bonds are arbitrage instruments (many investors think of them as a bond with an embedded call option), but when many different convertibles are held in a fund like CWB, the resulting portfolio blends the qualities of stocks and bonds in one instrument,” according to Morningstar analyst Abby Woodham.
“An investment in CWB makes sense for income investors willing to sacrifice some return for downside protection and extra yield,” Woodham added. “CWB is not a bond substitute, as its volatility is several times greater than that of a typical fixed-income fund.”
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