Launch of SPDR Barclays Capital Long Term Credit Bond ETF (LWC)
March 11, 2009 by Ron Rowland
Filed under Commentary, ETF IPOs (New ETFs), ETFs
So far, 2009 is turning into the “Year of the Bond ETF” with half of all new product launches being bond ETFs.
SPDR Barclays Capital Long Term Credit Bond ETF (LWC) began trading today. Its sponsor, State Street Global Advisors, claims that it is the longest duration credit bond ETF available. Indeed, the underlying index boasts an effective average maturity of more than 24 years, according to the fact sheet.
The yield, before expenses, is expected to be nearly 7.5%, and with an expense ratio of only 0.15%, the net yield should be quite healthy – more than twice the yield from Treasury bonds of similar maturity. Depending on your view, this implies that LWC either carries a high degree of risk or presents an attractive opportunity at the present time.
The underlying index has sector exposure of 52% to industrials, 19% to financials, and 13% to utilities. Holdings are considered to be “investment grade” when added to the index. However, in the current market environment, we’re not entirely sure what that means or how long that designation will last.
The long maturity also implies high volatility. Bonds, and bond funds, are often used to help reduce portfolio volatility. Returns for corporate bonds have been highly correlated to equity markets recently. As a result of high correlation and high volatility, they have not provided the anticipated reduction in overall portfolio volatility.
Still, if you seek exposure to long-dated corporate debt, LWC should fulfill your needs.
Other bond ETFs launched in 2009:
- iShares S&P/Citigroup 1-3 Year International Treasury Bond Fund (ISHG)
- iShares S&P/Citigroup International Treasury Fund (IGOV)
- Market Vectors High-Yield Municipal Index ETF (HYD)
- Market Vectors Pre-Refunded Municipal Index Fund (PRB)
- SPDR Barclays Capital Intermediate Term Credit Bond ETF (ITR)
- SPDR Barclays Capital Mortgage Backed Bond ETF (MBG)
- SPDR Barclays Capital Short Term International Treasury Bond ETF (BWZ)
Disclosure: no positions
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