SSgA’s Int’l Corporate Bond ETF First To Market

May 20, 2010

“If you’re a U.S. investor, you’re thinking about credit quality, which is high,” Anderson said, referring to the relatively large and stable issuers that the new ETF will focus on. “But there’s also currency exposure, and that can be a positive and a negative. An investor in this fund would want to have a view on the euro and the dollar.”

A falling euro will hurt returns in the fund, while a euro recovery will boost results.

The index fell more than 4 percent over the first four months of 2010, but over the trailing three years through April 30, 2010, it returned 5.20 percent per year.

The Competition

The launch of SSgA’s fund comes a day after PowerShares filed to seek approval for a competing international, investment-grade bond market index. Anderson said SSgA hopes to benefit from IBND’s first-to-market status, a position that historically has given ETF issuers a leg up on the competition in the asset-gathering game.

The proposed PowerShares International Corporate Bond Portfolio (NYSEArca: PICB) will seek to own investment-grade corporate debt from non-U.S. issuers in the following currencies: euros; Australian, Canadian and New Zealand dollars; British pounds; Japanese yen; Swiss francs; Danish and Norwegian krone; and Swedish krona.

PowerShares didn’t specify the exact breakdowns in its filing.

Both SSgA’s “IBND” and PowerShares planned fund, “PICB,” employ sampling strategies that don’t require the two to buy all the securities in their underlying indexes.

SSgA’s IBND will also be allowed to invest in securities that aren’t included in the index, such as futures, options, swap contracts and other derivatives, cash and cash equivalents or money market instruments.

Anderson said IBND’s launch is part of his company’s strategy to build out its line of international bond ETFs, and comes at a time when the ETF structure is giving investors the ability to access specific areas of the bond market that weren’t accessible previously.

“Investors can use ETFs to disaggregate the aggregate,” Anderson said.

 

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