Time For An International Corporate Bond ETF?

by on March 8, 2010 | ETFs Mentioned:

State Street has filed for SEC approval on the Barclays Capital International Corporate Bond ETF (IBND), which could become the first U.S.-listed ETF to track the performance of the investment-grade corporate sector of the global bond market.

The fund would seek to track the Barclays Capital Global Aggregate ex-USD >$1B: Corporate Bond Index, a benchmark designed to be a broad measure of the global investment-grade, fixed rate corporate debt markets outside the U.S. In order to be eligible for inclusion, securities must be rated investment grade by at least two ratings agencies, have a minimum $1 billion market capitalization, and have at least one year remaining until maturity. Excluded from the index are subordinated debts, convertible securities, floating-rate notes, fixed-rate perpetuals, warrants, linked bonds, structured products, and Swiss Franc denominated debt.

The proposed fund would represent a mix of two of the hottest investment trends of the last year: international and fixed income investing. In 2009, international equity funds saw more than $35 billion of cash inflows, while fixed income funds raked in $42 billion.

For many years, the iBoxx $ Investment Grade Corporate Bond Fund (LQD) thrived as the only true investment grade corporate bond ETF. LQD currently has more than $12 billion in assets, a clear indication that investors have embraced ETFs as a way to achieve fixed income exposure. Vanguard has introduced targeted corporate bond ETFs in recent months (VCSH, VCIT, VCLT), but all current corporate bond ETF offerings are limited to U.S. securities (see a complete list in the Corporate Bonds ETFdb Category). A handful of international bond funds have popped up, but these primarily focus on Treasuries issues by foreign governments.

No expense ratio was included in the filing. See the complete prospectus here, and sign up for our free ETF newsletter to receive regular updates on new product offerings.

Disclosure: No positions at time of writing.