Even with stocks at near-record highs, investors haven't given
up on bonds. The bond ETF world has seen inflows of over half a
billion to start 2013 with one year figures showing nearly $40
billion of inflows.
However, these inflows haven't been focused on treasury bonds,
but instead on riskier corners of the market with a focus being
on corporate debt. This segment of the fixed income world has
accounted for the bulk of the inflows and it has driven many
issuers to launch new products in this increasingly popular
The latest iteration of this trend comes to us from
WisdomTree, a firm that has been stepping up its presence in the
bond world. Its newest fund is the
Global Corporate Bond Fund (
, looking to give investors broad exposure to corporate
securities, no matter where they are in the world (read
3 Actively Managed Bond ETFs for Stability and
GLCB in Focus
The product looks to charge investors 45 basis point a year
for this exposure, employing active management techniques. This
will be done via a partnership with Western Asset Management
Company, a firm that currently oversees more than $115 billion in
global bond debt.
Western Asset Management believes that it can add to a bond
portfolio by looking at relative value in the context of risk
while also using a disciplined credit research approach. The
company also looks to employ a strict sell discipline using a
top-down assessment of the global economy, and then a bottom-up
analysis on a company by company basis.
This approach currently results in a portfolio that has about
half of its holdings in American bonds, and then about 33% in the
EMEA region. Outside of the USA, the top five countries include
the UK, Italy, Russia, and Mexico, suggesting a decent-although
not huge-allocation to emerging markets (see
Seven Biggest Bond ETFs by AUM
In terms of credit quality, securities in the 'A' range
dominate, accounting for roughly two-fifths of the
portfolio. 'BBB' securities take the next spot at about 25%
of the assets, followed by 15% to 'B' rated bonds.
Investors should also note that the interest rate risk of the
fund looks to be moderate, falling between two and ten years,
depending on global conditions. Additionally, the product will
look to hedge out some non-US currency risk, so investors
shouldn't have to worry too much about foreign exchange swings
impacting their investment.
Can it Succeed?
Actively-managed products have a rocky track record when it
comes to the ETF world. Some investors refuse to embrace them as
a rule, while others have begun to see the potential in some
This is especially true in the bond world where markets are
less efficient and pricing mismatches can be more likely. Given
that this product looks to have a big focus on international
securities, this could be a particularly important issue for GLCB
and help to make the case for active management.
Beyond that, many investors remain woefully under-allocated to
international securities, both in stocks and even more so in
bonds. This is somewhat surprising given the wide number of
options that offer exposure to the space but the trend continues
Time to Exit Treasury Bond ETFs?
This trend continuing could be very damaging in the bond space
as WisdomTree's research shows that global corporate composite
hedged indexes have offered up a higher rate of return than any
of their investment grade focused counterparts, while still
producing a standard deviation that is in line with the
This suggests that global bonds can bring attractive qualities
to a portfolio and help to make a bond component perform better
overall. For this reason, WisdomTree believes that their ETF can
be thought of as a core holding in the bond space, and one that
can be a valuable part of a well-diversified portfolio.
The big test will be if the ETF can obtain a solid level of
assets and WisdomTree's track record on this front has been
products have seen huge inflows but their Europe-focused EU has
Is the Best Performing Bond ETF Really in
Given this, it will be interesting to see if WisdomTree's new
ETF can compete with some of the big products out there which
have a huge US focus but that have built up a massive asset
following. GLCB will need to rely on its active management and
its well-rounded holdings profile in order to do this, but if
some solid performance comes its way there could be room for this
fund in the bond world as well.
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WISDMTR-ASIA LD (ALD): ETF Research Reports
WISDMTR-EM LDF (ELD): ETF Research Reports
(GLCB): ETF Research Reports
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