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ETF Specialist

Should You Consider a Convertible-Bond ETF?

This convertible-bond ETF might offer attractive risk-adjusted return compared with traditional equity investments.

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One of the fastest-growing exchange-traded funds may come as a surprise:  SPDR Barclays Capital Convertible Securities (CWB), the only convertible-bond ETF. Convertible bonds are a niche asset class with an estimated market cap of less than $500 billion and are traditionally considered the purview of active managers. Only a handful of convertible-bond mutual funds and closed-end funds exist. Nonetheless, CWB almost doubled in size over the past year to more than $2 billion in assets, making it the third-largest convertible-bond fund of any kind. CWB is the sole passively managed option and is worth a look by investors searching for an asset class that can offer compelling risk-adjusted return and some extra yield compared with traditional equity investments.

The Basics
Convertible bonds are fixed-coupon securities that grant the holder the option of exchanging the bond for common or preferred stock at a specified strike price. These hybrid securities are senior to equity in the capital structure but usually subordinate to traditional bonds.

Abby Woodham does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.