The market's newest corporate debt ETF is global in scope and actively managed.
WisdomTree Investments, an ETF firm known for its fundamentals-focused indexes, today rolled out an actively managed global corporate bond ETF that would be one of the first funds to serve up a diverse portfolio of blended developed and emerging market corporate debt.
The WisdomTree Global Corporate Bond ETF (NasdaqGM: GLCB), which is designed to generate return income as well as capital appreciation, invests in dollar- and nondollar-denominated investment-grade and high-yield debt securities from public, private, state-owned or -sponsored issuers around the globe. GLCB has a net annual expense ratio of 0.45 percent, or $45 per $10,000 invested.
New York-based WisdomTree’s latest addition has not only managed to comprise in one wrapper what other providers have packaged in several strategies, but is also the first actively managed global corporate bond fund. The launch comes at a critical juncture in fixed-income markets. Rates may be on the verge of normalizing to higher levels than they have been since the 2008 market collapse, and active management could turn out to be an ace in the hole as prices on existing bonds drop amid rising rates.
Among WisdomTree's competitors are iShares—which has some 20 fixed-income ETFs in the corporate bond segment. While most of those funds are focused on U.S. debt, the San Francisco-based ETF sponsor also offers the iShares Global High Yield Corporate Bond Fund (NYSEArca: GHYG), the iShares Emerging Markets Corporate Bond Fund (NYSEArca: CEMB) as well as an international preferred stock portfolio.
Corporate bonds have gained favor with investors looking for income at a time when yields are compressed in the other areas of the bond markets, and WisdomTree is hoping GLCB will become a core fixed-income holding in investors’ portfolios.
“There is a much wider opportunity set in corporate bonds when investors do not restrict themselves to U.S. issuers—a global universe now features 2,761 issuers and $11.2 trillion in overall debt,” the company said in a statement about GLCB that was published on its website.
“Active management offers the potential to exploit certain market inefficiencies through disciplined credit research and active risk oversight to manage portfolios through credit cycles,” it said.
The fund could expose investors to currency-related risk, something WisdomTree is looking to mitigate by hedging that currency exposure of non-U.S.-denominated debt back to U.S. dollars.
To manage interest rate risk, the portfolio will have an aggregate duration of two to 10 years. Duration is a measure of a fixed-income security’s sensitivity to changes in interest rates or the interest rate outlook—the shorter the duration, the less sensitive a portfolio is to changes in interest rates.
The weight of a single issuer will be capped at 10 percent of the fund’s net assets, and a single country may represent as much as 30 percent of the mix. The exception here is the U.S., which may represent as much as 70 percent of the mix at any given time.
From a regional perspective, as much as 25 percent of the portfolio could be allocated to emerging market debt.