Daily ETF Watch: A 3rd Convertible Fund

Fund sponsors seem to be keen on providing investors with convertible bond ETFs.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

A third convertible bond ETF—this one with international coverage—will soon join two other U.S.-focused convertible bond funds that are already on the market. It’s the latest sign that fund sponsors are keen on putting more fixed-income options into investors’ hands now that the Federal Reserve’s first rate hike in nine years really seems to be about to happen later this year.

 

The proposed First Trust SSI Strategic Convertible Securities ETF is an actively managed fund that will invest in a portfolio of U.S. as well as non-U.S. convertible securities, according to the prospectus.

 

A convertible security is designed to provide current income and also the potential for capital appreciation through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying equity security. Accordingly, these equity-linked instruments offer the potential for equity market participation with potential mitigated downside risk in periods of equity market declines.

 

As such, convertibles are an interesting option for investors concerned with how rising rates could affect their portfolios.

 

The First Trust fund will have its primary listing on Nasdaq, according to the prospectus, which didn’t name a ticker or a proposed annual expense ratio.

 

Competition

 

As noted, the First Trust SSI Strategic Convertible Securities ETF will join two existing convertible bond ETFs, both of which are U.S.-focused.

 

iShares early this month rolled out the iShares Convertible Bond ETF (ICVT), which joined the granddaddy in the space—the $3.1 billion SPDR Barclays Convertible Securities ETF (CWB | C). Until the launch of the iShares fund, CWB hadn’t had any direct competitors. It launched in 2009.

 

ICVT comes with an expense ratio of 0.35 percent, 5 basis points cheaper than CWB.



 

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.