What’s In My International Corporate Bond ETF?

by on March 22, 2013 | ETFs Mentioned:

While most investors turn to iShares’ infamous iBoxx $ Investment Grade Corporate Bond Fund (LQD, A) as their top choice for corporate bond exposure, interest in products that go beyond the prolific LQD portfolio has grown in recent years. For those looking to diversify their fixed-income exposure, international corporate bonds offer a compelling option, and thanks to the evolution of the ETF industry, there are several international corporate bond ETFs to choose from [Download How To Pick The Right ETF Every Time].

While these products do offer the potential for uncorrelated returns and attractive yields, it is important to take a close look at the portfolio compositions, which sometimes reveal information that investors should pay attention to.

Market Vectors International High Yield Bond ETF (IHY, A-)International Corporate Bond ETFs

This offering from Van Eck is one of the largest and most popular international corporate bond funds, with over $258 million in total assets under management. With an expense ratio of just 40 basis points, IHY is also the cheapest ETF in this list. The fund is dominated by the “safer” European countries, including Luxembourg and Netherlands. In terms of sector breakdown, IHY is primarily invests in bonds from industrial companies, which account for nearly three-quarters of total assets.

SPDR Barclays Capital International Corporate Bond ETF (IBND, B+)

IBND’s portfolio primarily consists of bonds from financial, industrial and utility companies, which make up roughly 50%, 40%, and 10%, respectively, of total assets. And while this fund also invests in more stable European countries, it also has exposure to the U.S., which currently receives the highest allocation of over 16%. It should be noted, however, that the fund’s underlying index’s objective is to offer exposure to fixed income markets outside of the U.S. [see 8% Yield ETFdb Portfolio].

International Corporate Bond Portfolio (PICB, B+)

PowerShares’ PICB also has a significant allocation to U.S. corporate bonds, which together with fixed income securities from France and Canada make up more than half of the portfolio. Though the fund is primarily dominated by bonds from financial companies, meaningful exposure is also given towards consumer, industrial, telecommunication and utility sectors.

Global Corporate Bond Fund (GLCB, C)

This WisdomTree ETF is by far the most biased towards U.S. corporate bonds, which account for more than half of total assets. The second biggest allocation is towards U.K. bonds at less than 10%. The fund does however offer exposure toward “riskier” economies, including Russia, Italy and Mexico, making GLCB’s risk/return profile significantly different from the other funds in this list [see 10 Questions About ETFs You've Been Too Afraid To Ask].

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Disclosure: No positions at time of writing.