Invesco PowerShares filed regulatory paperwork to bring to market a short-term global bond fund serving up access to a relatively safe corner of the ETF market that offers protection from potentially large losses that holders of longer-dated bonds would face in the event of a bond-market meltdown.
The PowerShares Global Select Short Term Bond Portfolio will be based on the DB Global Dynamic Short Maturity Bond Index, which selects both public and private dollar-denominated bonds that are investment grade—having “a grade of BBB- or higher from Fitch and S&P or of Baa3 or higher from Moody’s,” according to the prospectus. The holding also must be no more than three years from maturity.
PowerShares’ fund comes at a possibly critical juncture, as bond investors start to look for ways to protect themselves from what a rise in inflation could do to prices of existing bonds. Concentrating holdings on the short end of the yield curve looks to be one of simplest ways of achieving this objective, even if short-term fixed-income holdings would entirely escape the effects of a bond market sell-off.
The proposed ETF will find itself in the middle of the pack in terms of maturity relative to a number of other popular funds on the market, such as the nearly $10 billion iShares Barclays 1-3 Year Credit Bond Fund (NYSEArca: CSJ) or the more than $10 billion Vanguard Short Term Bond ETF (NYSEArca: BSV).
Notably, it will have longer maturity than cash-equivalent funds on the market, such as the FlexShares Ready Access Variable Income ETF (NYSEArca: RAVI), which goes out to two years on the curve; and the Pimco Enhanced Short Maturity Strategy Fund (NYSEArca: MINT), which goes out one year. RAVI now has $7.5 million in assets, while MINT has $2.59 billion, according to data compiled by IndexUniverse.
The fund, which doesn’t yet have a price tag or a ticker, will have its primary listing on Arca, the New York Stock Exchange’s electronic trading platform.
This week, the NYSE expects to hear from the SEC. What will it mean for ETF investors?
Our annual fixed-income conference is coming up in a little more than a week and I can’t wait.
When it comes to reinvesting dividends, mutual funds have ETFs beat.
With VIX spiking, it’s tempting to pile in or bet against it. Both are a bad idea.