The PowerShares Convertible Securities Portfolio (CVRT) was listed for trading yesterday (5/26/11), becoming the second ETF targeting convertibles. Convertible securities are bonds that the holder can convert into shares of common stock of the issuer. This feature tends to make them more correlated than non-convertible bonds to stock market movements.
CVRT will try to mimic the performance of the BofA Merrill Lynch All U.S. Convertibles Index, which is designed to track the performance of U.S. dollar-denominated investment grade and non-investment grade convertible securities sold into the U.S. market and publicly traded in the United States.
Unfortunately, the PowerShares website does not provide any sector or country allocation data for either the fund or the underlying index. Convertible bond funds have historically been overweight the technology sector. This is something that potential investors should be aware of, and it is a major reason why this missing information is not just desirable, but required.
CVRT has 58 holdings with the five largest being Amgen (AMGN) (0.375% 2013) 4.1%, General Motors (GM) (4.75% Pfd) 3.9%, United Continental Holdings (UAL) (6.0% 2029) 3.0%, Microchip Technology (MCHP) (2.125% 2037) 2.8%, and Ingersoll-Rand (IR) (4.5% 2012) 2.8%. The fund has an expense ratio of 0.35%.
The overview page fails to provide current yield information, but the Investment Guide (pdf) contains a historical yield chart that appears to indicate the yield is close to the average coupon of 3.9%. The fund’s modified duration of 5.8 years, average implied volatility of 22.8%, and a delta (sensitivity to stock price changes) of 0.63 further indicate that it will behave more like a stock fund than a bond fund.
CVRT faces competition from SPDR Barclays Capital Convertible Bond ETF (CWB), which has a two-year head-start on gathering assets. CWB has 108 holdings, a 3.8% yield, and a 0.40% expense ratio. The CWB overview page provides a sector breakdown showing its 26.4% allocation to Technology.
Disclosure covering writer, editor and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.