Since the launch of CWB on April 16th, the bull market performance of this ETF has matched the SPX almost step for step, with lower volatility. In the chart below, CWB is represented by the red line, the SPX is in blue, and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is shown in green. This chart is an almost perfect illustration of why convertible bond ETFs (or closed-end fund or mutual fund) can be a powerful addition to one’s portfolio. At its best, in bull markets, convertibles have an upside comparable to stocks, with less downside risk. At their worst, which is generally in non-trending markets or bearish markets, the lower yield and expense of owning options that do not appreciate makes convertibles inferior to standard bonds.
Of course, options savvy investors will probably wish to buy their own bond ETF and cherry pick their favorite options plays, but for those who wish to forgo a customized approach and stick with an off-the-shelf product, CWB is – for the moment at least – the only ETF which is up to the task.
