ICVT: Expect A Period Of Strong Performance

Feb. 05, 2023 1:03 AM ETiShares Trust - iShares Convertible Bond ETF (ICVT)ANGL, CWB, HYD, JNK, MUB, TFLO, VVR, IEI, IEF, TLT1 Comment

Toma Hentea

Investing Groups

Summary

ICVT, a Convertible Bond ETF, had an exceptional run in 2020 right after the COVID market crash.
We believe that the current market recovery after the bear market of 2022 presents a similar opportunity, and we expect a strong ICVT performance over the next six-twelve months.
We rate ICVT a Buy.
Looking for a portfolio of ideas like this one? Members of Adaptive Momentum Investing get exclusive access to our subscriber-only portfolios. Learn More »

text Tactical Asset Allocation - TAA, business concept. — Zolak/iStock via Getty Images

Fund Profile

The fund profile as well as fund details and performance were downloaded from seekingalpha.com here.

iShares Trust - iShares Convertible Bond ETF (BATS:ICVT) is an exchange traded fund launched by BlackRock, Inc. It is managed by BlackRock Fund Advisors. The fund invests in the fixed income markets of the United States. It invests in securities of companies operating across financials, industrials, and utilities sectors. The fund invests in U.S. dollar-denominated cash pay convertible bonds issued by corporations with maturities of 31 days or more. It seeks to replicate the performance of the Bloomberg Barclays U.S. Convertible Cash Pay Bond > $250MM Index, by using representative sampling technique. iShares Trust - iShares Convertible Bond ETF was formed on June 2, 2015 and is domiciled in the United States.

Fund Details

Fund Type Allocation

Issuer iShares

Inception 06/02/2015

Expense Ratio 0.20%

AUM $1.23B

Total Returns

	1Y	3Y	5Y
ICVT Total Return	-7.80%	33.81%	64.01%
S&P 500 Total Return	-7.40%	36.05%	65.28%

Top 10 Holdings as of 2023-01-31

Palo Alto Networks Inc 0.375% 1.56%

Palo Alto Networks Inc 0.75% 1.43%

Ford Motor Company 0% 1.11%

Sea Ltd. 0.25% 1.06%

Pioneer Natural Res Co 0.25% 1.05%

DexCom Inc 0.75% 0.95%

DISH Network Corp 3.375% 0.95%

Southwest Airlines Co. 1.25% 0.92%

Pinduoduo Inc 0% 0.92%

Royal Caribbean Group 6% 0.85%

Total 10.79%

# of Holdings 332

Three Periods of Price Behavior

ICVT had a spectacular run in 2020 right after the COVID crash. In the period between March 23, 2020 and February 12, 2021, ICVT total return was 154.76%. That is exactly twice as much as the SPY return of 78.35%.

This big difference is striking while looking at its graphical representation in the figure below. ICVT is the red vs. SPY in blue.

Overall, ICVT and SPY returned the same amount, around 90% over three years. It is remarkable that we can divide the period in three intervals with striking different behavior.

ICVT strongly outperforms SPY from 3/23/2020 to 2/12/2021.
ICVT generates a loss (-12.56%) vs. SPY gain (18.97%) from 3/1/2021 to 3/31/22.
ICVT and SPY behave identically from 4/1/2022 to 1/31/2023.

Technical Analysis

The weekly price chart of ICVT shows a strong uptrend with a sequence of five positive weekly gains. It also shows a “bullish” cross of the 10-week with 40-week MA during this past week.

The chart indicates a strong uptrend, which I believe is likely to continue.

Another interesting illustration is presented in a Relative Rotation Graph of ICVT and SPY.

The graph shows that ICVT has been improving more than SPY lately.

Application - The BND Portfolio

ICVT is used in a portfolio in my AMI marketplace service. Because ICVT displays long periods of consistent cyclical behavior, it is very suitable for portfolios with asset tactical allocation.

The BND portfolio has the following Bond ETF Universe: ANGL, CWB, HYD, ICVT, JNK, MUB, TFLO, VVR.

During risk-off market the asset universe is: IEI, IEF, TLT, DBC, UUP.

During risk-neutral markets the asset universe is: XLP, XLV.

We simulate two variants: one investing in the top asset, called BND1Q. The second variant, called BND2Q, invests in the top 2 assets.

The table below shows the summary performance of the portfolios for simulations from 1/1/2012 to 2/2/2023.

	CAGR	stdev	maxDD	Sharpe R	Sortino R
BND1Q	21.86%	11.25%	-7.65%	1.75	4.82
BND2Q	20.25%	11.07%	-6.55%	1.69	4.82
SPY B&H	13.38%	14.39%	-23.95%	0.90	1.40

More details of the performance can be seen in the following two PDF reports generated by the Portfolio Visualizer application.

BND1Q.pdf

BND2Q.pdf

Conclusion

ICVT had an exceptional performance in 2020 and is posed to repeat a similar such performance in 2023.

We rate ICVT a Buy.

ADAPTIVE MOMENTUM INVESTING

Apply the results of our research to achieve superior returns while keeping losses manageable during severe market corrections.

Get access to our four portfolios:

High yield bond ETFs
Non-leveraged broad market ETFs
High 3X Leverage ETFs
Top Momentum Large-cap stocks

Sign up for a FREE TRIAL today

This article was written by

Toma Hentea

2.39K Followers

Leader of Adaptive Momentum Investing

Monitor market state (risk on/off) for successful investing

I am a retired professor of Electrical and Computer Engineering. Since 2011 I have been active in the AAII Chicago South Suburban chapter. My investment objective is to achieve high returns over the long run while allowing occasional downside corrections. Investment decisions are based on quantitative fundamental factors that take into account valuations, earnings growth and price momentum. Market exposure is varied in accordance to the state of leading US and global economic indicators. Options and leverage are used to enhance the performance of my investments.

Disclosure: I/we have a beneficial long position in the shares of ICVT, VVR, ANGL either through stock ownership, options, or other derivatives. 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.