Apple raised $17 billion in a record corporate bond sale on
April 30, and those bonds are now starting to show up in
fixed-income ETF portfolios, and possibly at the worst time.
linked to the Barclays U.S. Aggregate Bond Index already own Apple
debt. These funds include the likes of the $15 billion iShares Core
Total U.S. Bond Market ETF (NYSEArca:AGG)-currently allocating less
than 0.1 percent to Apple debt ranging in maturity from five to 30
years-and the $680 million SPDR Barclays Aggregate Corporate Bond
ETF (NYSEArca:LAG), which has 0.08 percent of its portfolio tied to
In all, it seems that a handful of strategies already own a
piece of that record-breaking bond sale. Apple's debt issue-the
first since 1996-included $14 billion in fixed-rate securities with
maturities ranging from three to 30 years, and $3 billion in
The sale came a time of increased demand for fixed-income
exposure that looks beyond the paltry yields in government-issued
debt for income opportunities. Stronger post-credit-crisis
corporate balance sheets have made company debt an appealing source
of income for many investors, especially because, by and large,
many of them yield more than equivalent similar-maturity
But the appeal of corporate debt may be dwindling as these bonds
start to feel the backlash of investor concerns about the Federal
Reserve's unwinding of monetary easing policies. After staging a
strong performance last year, U.S. corporate bonds are starting to
lose steam--year-to-date, U.S. corporate bond returns are now in
negative territory after rallying nearly 10 percent in 2012.
Apple's 30-year bonds, for instance, have now fallen to just
over 90 percent of face value, according to a Wall Street Journal
article citing FactSet data. That's a loss from early May highs
that amount to three years' worth of coupon income, the article
Some of the other strategies that now include Apple debt in
their exposure include the $459 million Schwab U.S. Aggregate Bond
ETF (NYSEArca:SCHZ). SCHZ invests in a mix of Apple bond
maturities, including three-year, 10-year and 30-year bonds for a
total exposure that amounts to 0.05 percent of the overall
The iShares iBoxx $ Investment Grade Corporate Bond ETF
(NYSEArca:LQD)-the most popular corporate bond fund on the market,
with $23.7 billion in assets-also owns a piece of the action,
allocating about 0.26 percent of its 1,094-bond portfolio to Apple
bonds with a market value of some $60 million.
That allocation is currently split between five-year bonds that
mature in May 2018, that yield 1.46 percent, and 10-year debt
maturing in May 2023, currently yielding 3 percent, iShares data
LQD, which currently offers one of the highest yield-to-maturity
in the segment, is now yielding 3 percent-a reward for investors
who are willing to take on the risk the fund's tilt toward
Apple debt can also be found in a number of SPDR corporate bond
funds that include LAG-a fund that invests primarily in Treasurys
and mortgage-backed securities-and a trio of maturity-focused SPDRs
corporate debt funds.
Of those, the SPDR Barclays Intermediate Corporate Bond ETF
(NYSEArca:ITR) currently has the biggest allocation-0.40 percent
split between five-year and 10-year bonds.
Both the SPDR Barclays Long Term Corporate Bond ETF
(NYSEArca:LWC) and its short-term counterpart, the SPDR Barclays
Short Term Corporate Bond ETF (NYSEArca:SCPB) also own Apple-each
just under 0.3 percent of their respective portfolios.
The $186 million iShares Government/Credit Bond ETF
(NYSEArca:GBF), the only broad-market investment-grade U.S. debt
portfolio that excludes securitized debt, now allocates 0.02
percent of its 694-holdings portfolio to 30-year Apple bonds
yielding 4.37 percent.
Neither the $170 million Pimco Investment Grade Corporate Bond
Index ETF (NYSEArca:CORP)-a global-in-scope fund that holds debt
from companies like AT&T, Goldman Sachs and Procter &
Gamble-or the Pimco Total Return ETF (NYSEArca:BOND) own Apple
That's also the case for the $32 million PowerShares Fundamental
Investment Grade Corporate Bond Portfolio (NYSEArca:PFIG) or its
$151 million international counterpart, the PowerShares
International Corporate Bond Portfolio (NYSEArca:PICB).
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