Daily ETF Watch: New Convertible Bond Fund

iShares plans to launch a convertible bond ETF.

Reviewed by: Heather Bell
Edited by: Heather Bell


A recent filing from iShares indicates the world’s largest ETF provider is planning to roll out a convertible bond fund on the U.S. market. Convertible bonds are essentially corporate debt that can be converted into stock if the purchaser chooses to do so at a later date.


A fund focused on convertible securities is nothing new. State Street Global Advisors has the SPDR Barclays Convertible Securities ETF (CWB | C), which comes with an expense ratio of 0.40 percent and has accumulated almost $2.9 billion in assets under management. CWB, which launched in 2009, tracks the Barclays U.S. Convertible Bond > $500MM Index, which targets corporate convertible bonds with more than $500 million outstanding.


The iShares fund is slated to track a subindex of the Barclays U.S. Convertibles: Cash Pay Bonds Index, which is itself a subset of the broad Barclays U.S. Convertibles Index. The proposed ETF’s benchmark will cover U.S. convertible bonds with more than $250 million outstanding that have been issued by corporations classified as financials or industrials. In addition to investment-grade debt, high-yield and unrated securities are allowed in the index.


Essentially the iShares fund will take a broader focus than CWB in terms of including issues with less than $500 million outstanding, but it will exclude the utilities sector. Meanwhile, CWB covers issues from firms like Exelon and Dominion Resources.


Although coupon rates are typically lower for convertible bonds than for traditional bonds, they do provide investors with income in addition to the option to convert the bond position into a stock position at any time. However, it should be noted that investors in a convertible bond fund don’t have that choice available to them, as they hold a share in a fund rather than directly owning the underlying securities.


The filing did not include an exchange, 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.