Though the exchange-traded fund landscape now boasts a lineup of nearly 1,500 offerings, allowing investors to gain cheap and easy access to nearly every corner of the investable universe, fixed income ETFs are still just scratching the surface of their potential. And while there are some intriguing strategies in the space, including the fast-growing, hyper targeted products, a return to fundamentals may just be what investors are looking for in their fixed income allocations. Rick Harper, Head of Fixed Income and Currency at WisdomTree, recently took the time to discuss the new Global Corporate Bond Fund (GLCB) and how investors can take advantage of this compelling ETF in their portfolios [see Free Report: How To Pick The Right ETF Every Time].
ETF Database (ETFdb): Broadly speaking, what are some of the longer term trends that you are seeing in the global fixed income market?
Rick Harper (RH): Fixed income investing is evolving right before our eyes. The combination of changes in the global economy, greater access to information about the universe, as well as the lower yield levels that we are seeing in traditional fixed income is really prompting investors to look to a broader universe of bonds for their core fixed income needs. We are also seeing increased allocations in the more targeted sources of opportunistic fixed income, such as emerging market debt and high yield.
ETFdb: What was the inspiration behind creating the WisdomTree Global Corporate Bond Fund (GLCB)?
RH: I think part of it was to capture this trend that I mentioned before, providing investors exposure to the broadest options of corporate debt opportunities around the world. And providing the access to a top institutional debt manager, Western Asset Management, to help navigate the credit cycle and take advantage of these opportunities.
ETFdb: What separates GLCB from other global bond funds on the market?
RH: In a market environment that’s likely defined by selectivity and disciplined investing, a return to fundamentals perhaps, enabling a disciplined credit manager to select the best ideas from a broad universe of over 2,500 issuers and $11.2 trillion in debt outstanding offers a key differentiator to what is currently out there. I think it also important to mention that some of the best trades are the trades that are never made. That willingness to adhere to a strict sell discipline and the willingness to avoid participation in index issues that have run are important considerations when investing in this space and they are embedded in the core philosophy of GLCB [see 10 Questions About ETFs You've Been Too Afraid To Ask].
ETFdb: Why does it make sense to use the ETF wrapper for investors looking to pursue this sort of strategy?
RH: Transparency and ease of trading are two primary benefits when investing in ETFs. The essential need to know what you hold has been repeatedly validated by the multiple risk-off environments we’ve seen in recent years. Daily transparency afforded by ETFs creates a backdrop where investors can make more informed decisions within the portfolio. It’s a lot easier to know where you want to go if you have a crystal clear vision of where you currently are, and the daily transparency of ETF holdings provides that clarity. Along with the ease of trading, which allows investors to take advantage of the intraday trading and updates to the market.
ETFdb: Aside from generating income in this ultra-low rate environment, what else might investors find appealing about global fixed income exposure?
RH: The broad universe of global corporate bonds includes multiple sectors, and the ability to allocate between these sectors can add value to a portfolio, as well as enhance diversification to a US-heavy portfolio. Additionally, within the global corporate bond universe, there are a lot of interesting credit stories, that not only offer income potential, but also compelling total return opportunities. We continue to believe that assuming credit risk will benefit investors in the coming years relative to US and DM Treasuries. In GLCB, we are hoping to offer a core corporate bond portfolio that is reflective of the opportunities presented by today’s global economy [see High Yield ETFdb Portfolio].
Bottom Line: As investors continue to seek lucrative opportunities amidst today’s low interest rate environment, Wisdom Tree’s new Global Corporate Bond Fund (GLCB) is a compelling option as it combines attractive total return potential with key diversification benefits.
Disclosure: No positions at time of writing.