First Trust is set to roll out the first actively managed convertible bond ETF today. The First Trust SSI Strategic Convertible Securities ETF (FCVT) will join two index-based funds tracking the same space that are offered by iShares and State Street.
Convertible securities are basically fixed-income vehicles that can be converted into equity securities at some point in time. They tend to offer investors a combination of income and capital appreciation, according to the prospectus.
The SPDR Barclays Convertible Securities ETF (CWB | C) launched in 2009 and has since accumulated $2.7 billion in assets under management, while the iShares Convertible Bond ETF (ICVT) just launched this year and still has less than $20 million in assets. They both track fairly standard cap-weighted indexes offered by Barclays.
FCVT, on the other hand, will use fundamental and quantitative analysis to select its basket of securities. It can invest in any credit quality, including junk bonds, but at least 75 percent of the holdings should have an amount outstanding of $200 million at their time of issuance, the prospectus said.
But that active management has a cost. FCVT comes with an expense ratio of 0.95 percent, versus CWB’s fee of 0.40 percent and the 0.35 percent charged by ICVT.
Contact Heather Bell at [email protected].