The other funds’ volumes are paltry in comparison—less than $300,000 for the two funds combined changes hands most days, and average bid/ask spreads range from 53 basis points to 88 basis points. With such thin volumes, most trades are likely to either not get filled or cost even more than that.
Of the four, AdvisorShares’ FWDB has the broadest scope, reaching into almost every nook and cranny of the bond world.
The fund applies a fund-of-funds strategy, holding other ETFs that target 12 different debt sectors. At the moment, the fund is heavy on credit, with the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD) and the AdvisorShares Peritus High Yield ETF (NYSEArca: HYLD) as its largest allocations. More than 20 percent of the assets are allocated to funds with an international focus, ranging from investment-grade sovereign debt to emerging market corporates.
Pimco’s BOND also takes advantage of its global purview by allocating a significant portion of its assets—about 9 percent—to Mexico, with some smaller allocations to some developed European countries and a smattering to emerging markets. High-yield bonds carry an allocation of 11 percent, with nonrated securities making up 21 percent of the assets.
Guggenheim’s GIY and FirstTrust’s HYLS currently stay exclusively within the domain of USD-denominated debt.
GIY keeps its allocations to investment-grade debt exclusively. Its 29 holdings are allocated to U.S. governments (22 percent), mortgages (57 percent), and corporate debt (21 percent). HYLS comes from the other end of the credit spectrum and goes long high-yield debt (126 percent) and short Treasurys (26 percent).
The knee-jerk reaction may be: “What’s global about GIY and HYLS?” For now, not a whole lot.
But as active strategies, they can max out the permitted allocations to international debt without any notice.
Unlikely? Maybe. But not impossible.
As such, comparing the funds to a benchmark that does not allow for these flexibilities is like comparing apples and oranges. Just because both are fruit doesn’t mean it’s a viable comparison.
At the time this article was written, the author held no positions in the securities mentioned. Contact Gene Koyfman at [email protected].