The SPDR Bloomberg Barclays Convertible Securities ETF (NYSEARCA:CWB) is considered as an alternative fund by investors. It invests in liquid dollar-denominated convertible bonds which make up the Bloomberg Barclays US Convertible Liquid Bond Index (INDEX). About 87% of the Index is made up of bonds in the industrial sector, followed by utilities and financial stocks. On paper, the ETF is more of a growth than an income play with a middling gross expense ratio of 0.40% and an extremely modest TTM dividend yield of 2.18%.
Does it make sense to invest in CWB – either for income or growth – especially after it has gained about 27% in the last 12 months? Here is my take:
Image Source: TradingView
Between May 2012 and January 2020 (7 years, 7 months), CWB gained about 55%, which translates to an annual price momentum CAGR of 11.5%.
Image Source: TradingView
During the period from March 2020 (when COVID-19 rammed into the markets) to September 2021, CWB’s price gained about 108%. A look at CWB’s weekly chart (see the image above) shows that the price gains have petered out after February 2021, and therefore, I believe that the fund’s price will go back to normal times and climb at a slow and steady pace going forward.
CWB has been a consistent dividend payer (monthly) since its inception in 2009. Its TTM payout is $1.90, which gives it a TTM dividend yield of 2.18%. However, the ETF’s dividend CAGR is a negative 5.16% in the last 5 years, a dataset that implies that the ETF may end up paying a lower sum of about $1.80 ($1.90 less 5.16%) in 2021.
Image Source: CWB Dividend Grading
A dividend payout of $1.80 in 2021 gives the ETF a forward dividend yield of 2.07% based on its market price of $87.18 as of September 15, 2021.
Well, a 2.07% forward dividend yield coupled with a price momentum CAGR of about 10–11% is what investors can realistically expect from CWB going forward.
Image Source: CWB’s Website
About 86% of CWB’s total assets are invested in convertible bonds of companies in the industrial sector, about 7% in utilities, and some 6% in financials. The ETF’s managers seem comfortable in investing about 81% of the total assets in unrated convertible bonds.
As of September 14, 2021, the ETF has invested in 304 convertible bonds, and about 68% of its holdings are set to mature in 2–7 years. About 19% of its holds will mature within 1–2 years while about 6% will mature in the next 12 months. CWB’s annual portfolio ratio is 30%, which implies that it keeps flipping about one-third of its holdings every year.
Image Source: Custom Comparison at Seeking Alpha
A comparison of CWB with its peer, the iShares Convertible Bond ETF (ICVT), reveals that:
Based on these data, CWB has underperformed ICVT both on the dividend front and on the price momentum front.
Though investment in CWB offers a reasonable return, I would be more interested in ICVT. For this reason, my rating for CWB is neutral.
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