IBND: I'd Rather Own A CD Than This International Bond ETF

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IBND, managed by SSGA Funds, invests in global ex-US investment-grade corporate bonds, tracking the Bloomberg Global Aggregate ex-USD >$1B: Corporate Bond Index.The SPDR Bloomberg International ...

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FrankRamspott  Introduction With at least short-term interest rates starting to come down, inflation fears will help decide whether long-term rates will follow suit. If so, owning long duration bonds and/or funds would be a logical place to invest part of your fixed income allocation. With its short duration and low yield, investors likely won’t benefit from declining rates as much with this ETF as they would with other funds; thus, a Strong Sell rating is earned by the SPDR Bloomberg International Corporate Bond ETF (NYSEARCA:IBND). Besides just owning a safe CD, other choices are mentioned at the end of this article. SPDR Bloomberg International Corporate Bond ETF review Data by YCharts Seeking Alpha describes this ETF as: SPDR Bloomberg International Corporate Bond ETF is managed by SSGA Funds Management, Inc. It invests in the fixed income markets of global ex-US region. The fund invests in fixed rate investment grade corporate bonds that are rated Baa3 or higher by Moody’s or BBB- or higher by S&P or Fitch and have at least 1 year remaining to maturity. It seeks to track the performance of the Bloomberg Global Aggregate ex-USD >$1B: Corporate Bond Index, by using representative sampling technique. SPDR Series Trust - SPDR Bloomberg International Corporate Bond ETF was formed on May 19, 2010. IBND has $177m in AUM and has a high 50bps fee structure. The 2.45% Forward yield is easily topped elsewhere. Index review Understanding the index is important if a fund invests based on it, not that it just compares its performance against it. Bloomberg provides this index overview: The Bloomberg Global Aggregate ex-USD >$1B: Corporate Bond Index is designed to be a broad-based measure of the global investment-grade, fixed rate, fixed income corporate markets outside the United States. The securities in the Index must have a $1 billion USD equivalent market capitalization outstanding and at least 1 year remaining. Securities must be fixed rate, although zero coupon bonds and step-ups are permitted. Additionally, securities must be rated investment grade (Baa3/BBB-/BBB- or better) using the middle rating from Moody's Investors Service, Inc., Fitch Ratings, Inc., or S&P Global Ratings after dropping the highest and lowest available ratings. Excluded from the Index are subordinated debts, convertible securities, floating-rate notes, fixed-rate perpetuals, warrants, inflation-linked bonds, and structured notes. The Index is market capitalization weighted and the securities in the Index are updated on the last business day of each month. Source: saga index defined Holdings review The high-level sector data is 55% Financial, 41% Industrials, and 4% in Utilities. There are ten countries with at least a 2% exposure level. ssga.com countries The above allocations are based on where the issuer is headquartered or incorporated. The currency allocations reveal IBND is Euro-centric, with little currency exposure elsewhere. The ETF does very limited hedging.   ssga; compile by Author While the ETF only holds investment grade bonds, notice that 60% is allocated to the lower four ratings above \"junk\".   ssga; ratings Morningstar gives the portfolio an A- rating. A majority of the bonds mature within five years, resulting in a WAM of just 5.3 years. If longer-dated rates start falling, a longer WAM and Effective duration (4.6 years) would be preferred. The current WAC is just 2.4%; the YTM only 3.2%.   ssga maturities If rates fall fast, a large part of the portfolio most likely will take on lower coupons than today's WAC. Top holdings ssga holdings With over 800 holdings, the largest 20 positions (excluding the JPY position) are about 6% of the total weight. At under .4%, no single issue would damage the portfolio if it failed. Distributions review   Seeking Alpha DVDs Portfolio turnover and increasing AUM allowed payments to rise along with interest rates since late 2023. Payout growth has been very limited in 2024 though, as rates appear to have peaked here and around the globe. For a reason I did not find, the ETF made very limited distributions between 2014 and mid-2017, which was a period of historically low (even negative) rates. Looking at what investors saw Portfolio Visualizer Since inception a decade ago, investors have seen a -72bps CAGR with the IBND ETF. Its worst year was -19%; the worst drawdown a huge -33%. Needless to say, the above data truly justifies giving this ETF a Strong Sell rating. Comparing it to Peers within the Global Bond subclass, we see other ETFs were even the worst over the past five years, with IBND in the middle. Seeking Alpha subclass Portfolio strategy The safest alternative investment would be an FDIC-insured CD. While down from over 5%, the 3–5-year CDs still yield around 3.8% with no Call, currency, or price risk. Compared to the IBND ETF, these CDs provide about 140bps more yield. While that could easily be beaten if the ETF’s price improves, that hasn’t been the case since the FFOC cut the FFR by 50bps in September. Other investment choices are new ETFs like those from iShares that now allow investors to own a set of bonds that all mature within a single calendar year. By looking at the ETF’s YTM, investors get an idea what their return “might be.” The iShares iBonds 2029 Term High Yield and Income ETF (IBHI) currently has a yield of 6.4%, and a possible YTM of 7.2%. While I haven’t reviewed that ETF, I have done others in the set, like the iShares iBonds 2028 Term High Yield and Income ETF (IBHH). Final thoughts When I looked at the Seeking Alpha Quant Rankings, the JPMorgan International Bond Opportunities ETF (JPIB) ranked much higher than the IBND ETF. While the active versus passive investment approach probably plays a role there, the fact that JPIB hedges and IBND does little, played a role based on how paired hedged/unhedged equity ETF have performed.  When looking to add brokered CDs to your fixed income, the highest coupon is not always the best coupon to pick, as I’m discovering. Many brokered CDs, unlike bank issued ones, are Callable soon after being issued. What was a great 5.8% coupon maturing in 2028 was recently Called on me, only months after being issued. I had the choice of picking a non-callable one at 5.6% but was too greedy. 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