SPDR Bloomberg Barclays Convertible Securities ETF: A Neutral Convertible

Summary

  • Data indicate that though the SPDR Bloomberg Barclays Convertible Securities ETF’s price has gained 27% in the last 12 months, it is likely to deliver 10–11% annual price gains going.
  • The ETF’s forward dividend yield is modest – just 2.07%.
  • The fund also has underperformed its peer, the iShares Convertible Bond ETF, both on the dividend yield and the price momentum fronts.
  • This idea was discussed in more depth with members of my private investing community, The Lead-Lag Report. Learn More »

Bonds the word on wooden cubes, cubes stand on a reflective surface, in the background is a business diagram.
Dzmitry Skazau/iStock via Getty Images

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:

Pre- and Post-COVID-19 Price Momentum Analysis

01CWB.jpg

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%.

02CWB.jpg

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.

Forward Dividend Yield

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.

03CWB.jpg

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.

Portfolio

04CWB.jpg

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.

Peer Comparison

05CWB.jpg

Image Source: Custom Comparison at Seeking Alpha

A comparison of CWB with its peer, the iShares Convertible Bond ETF (ICVT), reveals that:

  1. CWB’s TTM dividend yield of 2.18% has underperformed ICVT’s 3.67%.
  2. CWB’s 5-year dividend CAGR has witnessed a negative growth of 5.16% while ICVT’s dividend yield has grown positively by more than 20% during the same period.
  3. Investors who held ICVT for 3–5 years experienced a larger price gain than CWB’s loyalists (check the image above).

Based on these data, CWB has underperformed ICVT both on the dividend front and on the price momentum front.

Summing Up

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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This article was written by

Michael A. Gayed, CFA profile picture
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This writing is for informational purposes only and Lead-Lag Publishing, LLC undertakes no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Lead-Lag Publishing, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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