WisdomTree Plans Active Corporate Bond ETF

October 30, 2012

WisdomTree plans a one-size-fits-all active corporate bond ETF.


WisdomTree filed paperwork to market an actively managed global corporate bond ETF that would be one of the first funds to serve up a truly diverse portfolio of blended developed and emerging-market corporate debt that includes investment-grade as well as junk bonds.

The WisdomTree Global Corporate Bond ETF, which is designed to generate return income as well as capital appreciation, is broad in scope, investing in dollar- and nondollar-denominated investment-grade and speculative-grade debt securities from public, private, state-owned or sponsored issuers around the globe.

The new fund from WisdomTree, an ETF firm known for its enhanced indexing strategies that screen securities for their earnings and dividend streams, puts into one wrapper what other providers have packaged in several strategies.

For instance, iShares—which has some 20 fixed-income ETFs in the corporate bond segment, most of which are focused on U.S. debt—offers the iShares Global High Yield Corporate Bond Fund (NYSEArca: GHYG), the iShares Emerging Markets Corporate Bond Fund (NYSEArca: CEMB) and an international preferred stock portfolio.

Corporate bonds have gained favor with investors who are looking for income at a time when yields are compressed in the more well-traveled areas of the bond markets, such as in U.S. Treasurys.

“The Fund employs a structured investment approach that utilizes ‘top down’ analysis of macroeconomic factors and ‘bottom up’ analysis of countries and issuers,” the company said in the filing.

Currency-Hedged Overlay

WisdomTree’s approach to the space could expose investors to currency-related risk, something WisdomTree is looking to mitigate by hedging that “currency exposure of non-U.S. denominated debt back to U.S. dollars,” according to the filing.

To manage interest-rate risk, the portfolio will have an aggregate duration of two to 10 years. Duration is a measure of a fixed-income security’s sensitivity to changes in interest rates or the interest rate outlook—the shorter the duration, the less sensitive a portfolio is to changes in interest rates.

The weight of a single issuer will be capped at 10 percent of the fund’s net assets, and a single country may represent as much as 30 percent of the mix. From a regional perspective, as much as 25 percent of the portfolio could be allocated to emerging market debt.

The fund may occasionally include foreign sovereign debt and debt securities that are linked to inflation rates in other countries, the filing said. WisdomTree didn’t include a ticker or a proposed expense ratio in the filing.

The ETF is expected to be listed on Nasdaq.


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