Proprietary Data Insights
Financial Pros’ Top Convertible Bond & Preferred Share ETF Searches in the Last Month
The Unusual World of Convertible Bonds & Preferred Share ETFs
Most folks never pay much attention to convertible bonds or preferred shares.
And yet… financial pros have started to show an unusual interest in related ETFs.
The top search by financial pros, the First Trust SSI Strategic Convertible Securities ETF (FCVT), gave us a chance to explore this lesser known part of the market.
And what we found was rather interesting.
Key Facts About FCVT
Let’s start by quickly reviewing how convertible bonds and preferred shares work.
Convertable bonds are debt instruments with a provision allowing holders to ‘convert’ the debt into equity. The downside is they typically come with lower interest payments.
Preferred shares pay a fixed dividend like bonds. And they’re a higher priority if and when a company liquidates than common stockholders. However, they don’t come with voting rights and typically have limited capital gains.
The FCVT is an actively managed fund that holds at least 80% of its net assets in a diversified portfolio of U.S. and non-U.S. convertible securities.
Because FCVT is actively managed, you get a bit of a mixed bag.
Surprisingly, the ETF holds more technology convertible bonds than any other sector.
The bond selloff we’ve seen over the last year didn’t leave FCVT unscathed.
The average returns listed above might not seem like much.
However, it fared a LOT better than your typical bond fund.
When we compared FCVT to the other top convertible bond and preferred share ETFs, we got wide range in terms of dividends, performance, and liquidity.
What quickly becomes apparent is onlytwo of these ETFs trade enough shares to make them worth investing.
And of them (PFF and PFFD) both have absolutely abysmal performances.
Our Opinion 2/10
FCVT might one day be a quality ETF.
However, it doesn’t trade enough volume, nor does it have enough assets under management after nearly a decade in service.
Despite its decent performance, we think there is too much risk with this ETF.
If you want to invest in convertible bond funds, your best bet is to go with mutual funds for the time being.
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