Invesco PowerShares, the investment manager behind the Q’s ETF of Nasdaq’s 100-biggest companies, is expanding its lineup of fixed-income ETFs with a convertible securities ETF it anticipates will be launched next week.
The PowerShares Convertible Securities Portfolio (NYSEArca: CVRT), comprising U.S.-listed investment grade and non-investment grade convertible securities, will join the $717 million SPDR Barclays Capital Convertible Bond ETF (NYSEArca: CWB), the market’s first convertibles ETF launched in 2009. CVRT will be the cheaper of the two, at 0.35 percent in fees versus CWB’s 0.40 percent.
Convertible bonds can be exchanged for the issuer’s shares under certain conditions. Those dual characteristics of convertibles mean they provide the safety of a bond with the upside potential of equities. The downside, however, is that they often pay lower yields than corporate bonds with similar maturities.
CVRT, which is linked to the BofA Merrill Lynch All U.S. Convertibles Index through a representative sampling strategy, is expected to issue monthly distributions, the company said. The fund targets investors looking for “attractive” yields and a relatively low-duration portfolio.
“Convertibles are hybrid securities that combine the par value and yield characteristics of a bond with the potential to participate in equity-like returns,” Ben Fulton, Invesco PowerShares managing director of global ETFs, said in a press release.
“The yield on the BofA Merrill Lynch All U.S. Convertibles Index has been higher than the dividend yield on the S&P 500 Index since its inception in December 1994, and it has produced better risk-adjusted returns,” Fulton added.
The index, which is a market value-weighted benchmark based on the securities’ prices and outstanding shares, is rebalanced daily.
The company said it set Thursday, May 26 as the likely launch date.