Daily ETF Watch: iShares Debuts Bond Fund

World’s largest ETF provider rolls out a convertible bond ETF.

Reviewed by: Heather Bell
Edited by: Heather Bell

iShares today rolled out the iShares Convertible Bond ETF (ICVT), which will compete with a similar fund from State Street Global Advisors with $3.1 billion in assets under management. The SPDR Barclays Convertible Securities ETF (CWB | C), until now, has not had any direct competitors; it launched in 2009.


ICVT tracks the Barclays U.S. Convertible Cash Pay Bond > $250MM Index. The fund will track cash-pay convertible bonds denominated in U.S. dollars that have maturities of 31 days or more, and face values outstanding of at least $250 million. The index includes investment-grade as well as high-yield securities.


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


WisdomTree Adds To Currency-Hedged Lineup

The dominant force in the currency-hedged ETF space, WisdomTree, expanded its lineup of funds today to include two more hedged vehicles. The WisdomTree Global ex-U.S. Hedged Dividend Fund (DXUS) and the WisdomTree International Hedged SmallCap Dividend Fund (HDLS) are the latest additions, bringing the number of currency-hedged funds fielded by WisdomTree to 16, with more than $40 billion in assets under management among them.


Both funds are dividend weighted. DXUS combines emerging as well as developing markets outside of the U.S., while HDLS covers the bottom quarter of the components of WisdomTree’s DEFA index in terms of market capitalization. DEFA essentially covers developed markets excluding North America.


HDLS charges an expense ratio of 0.58 percent, or $58 per $10,000 investment, while DXUS charges 0.44 percent.


HACK Competitor In The Works

The First Trust Nasdaq CEA Cybersecurity ETF went into registration this week, meaning the smashingly successful $715 million ETF trading under the catchy ticker “HACK” has its first competitor.


The First Trust Nasdaq CEA Cybersecurity ETF went into registration this week, meaning the smashingly successful $714 million ETF trading under the catchy ticker “HACK” has its first competitor.


Like HACK, the new fund will seek to capture companies that develop and provide security protocols and their management to networks, computers and mobile devices. But the two funds have slightly different methodologies, which we’ll highlight below. The proposed fund will have the ticker “CIBR,” underscoring the undeniable fact that a ticker like HACK is pretty much an impossible act to follow.


When the PureFunds ISE Cyber Security ETF (HACK | C-22) rolled out late last year, market participants at first seemed divided over whether it was a truly innovative product or a gimmick with a really cool ticker. But the fund has grown steadily and looks likely to reach the $1 billion milestone before long.


We noted in March that many advisors who flooded into HACK did so because existing technology ETFs didn’t have sufficient exposure to the all-important cybersecurity space. Others found that using it in conjunction with an equal-weighted technology fund dampened some of the effects of larger technology companies.


Given the fund’s amazing success, it’s no wonder that the first HACK competitor has appeared on the horizon. First Trust, known partly for its niche strategies and for the patient way it directly markets its products to advisors, is likely to be a formidable competitor for the upstart PureFunds.



First Trust To Field A Competitor

The prospectus descriptions of the two funds seem pretty similar, with some key differences. The First Trust fund’s index is described as having 38 components at an undetermined date, while HACK has 31 holdings. And, of course, both cover companies around the world providing Internet security.


But HACK divides its components into two categories: infrastructure providers and service providers. Both categories are weighted by their total market capitalization, but within each category, components are equally weighted.


The First Trust fund will use a modified liquidity weighting approach, and it will determine what qualifies as a cybersecurity firm based on how that category is defined by the Consumer Electronics Association. That’s the same organization that defines the parameters of what qualifies for the First Trust Nasdaq CEA Smartphone Index Fund (FONE | D-6).


Cybersecurity Face-Off

So the question is really whether the First Trust cybersecurity ETF will be able to get enough traction. HACK itself had a fortuitous boost due to its launch coinciding with a wave of Internet security breaches and was able to establish itself pretty securely. With HACK’s memorable ticker and its strong lead, First Trust will likely try to compete on price and its unique weighting approach.


As a larger firm, it will likely be able to offer its own cybersecurity fund at a lower price than HACK’s 75 basis points. The benefits of the liquidity weighting approach seem a little murkier, as that may be less relevant if investors are using HACK as a buy-and-hold complement to their technology allocation.


The First Trust filing didn’t include a ticker or expense ratio.


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.