A New Twist on Corporate Bond ETFs
When it comes to investment-grade corporate bond ETFs, one fund dominated the arena for years. However, as investors have sought higher yields beyond the confines of U.S. borders, some ETF issuers have obliged with new funds offering access to international investment-grade corporates.
The latest entrant to that competition is the WisdomTree Global Corporate Bond Fund (NASDAQ: GLCB), which debuted Thursday. GLCB will seek to maintain at least 55 percent of its holdings in investment grade assets, with the ability to also invest in U.S. and international high-yield as well as developing world corporates, according to a statement issued by WisdomTree.
For now, the actively managed GLCB devotes over 51 percent of its weight to U.S. corporates. The U.K. is the next largest country weight at 9.6 percent, but after that GLCB does an admirable job of mixing developed and developing markets together.
For example, Italy and Russia essentially have the same weights at just under 4.5 percent while Brazil and Germany each account for just over three percent of the new ETF's weight. Other country allocations include Mexico, France, Canada and Colombia.
"We believe a broad global approach incorporating active credit analysis presents an opportunity to manage risk, liquidity and find opportunities for relative value over changing credit and interest rate cycles," said WisdomTree Chief Investment Strategist Luciano Siracusano in the statement. "In contrast to market capitalization-based fixed income index funds, GLCB is an actively managed ETF designed with the flexibility to invest – and rotate – across fixed income sectors and issuers around the world."
Regarding credit risk, while GLCB can tap various high-yield markets, its current holdings are predominantly investment-grade. Nearly 73 percent of the fund's holdings are rated AA, A or BBB.
GLCB's top holdings include issues from Bank of America (NYSE: BAC), HSBC (NYSE: HBC), Goldman Sachs (NYSE: GS), Russian energy giant Gazprom and Anheuser-Busch Inbev (NYSE: BUD). The fund's weighted average coupon is 5.7 percent and its average years to maturity is 6.17.
While a corporate bond ETF with an international focus may seem like a niche concept to some, the opposite is actually true and WisdomTree has proven as much with another actively managed product. The firm launched the WisdomTree Emerging Markets Corporate Bond Fund (NASDAQ: EMCB) in March 2012.
Providing investors exposure to emerging markets corporates has proven to be a winning idea. Not only did EMCB's debut lead to the debut of two copycat funds from rival issuers, but the ETF now has over $112 million in assets under management, making it one of last year's more successful new product launches.
With an expense ratio of 0.45 percent, GLCB is less expensive than EMCB, which charges 0.6 percent. Both ETFs are sub-advised by Western Asset Management.
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