Invesco PowerShares, the IL-based fourth-largest US issuer of exchange-traded funds, recently launched a laddered-strategy bond fund that aims to preserve capital and generate consistent income in an uncertain interest-rate environment.
The newly-launched PowerShares Ladderite 0-5 Year Corporate Bond Portfolio (LDRI) invests in corporate bonds with 5 years or less remaining to their maturity and qualifies as a strategic-beta fixed income product.
LDRI’s portfolio consists of only investment-grade dollar-denominated bonds issued by companies domiciled in advanced economies, including the US, Canada, Japan and Western Europe. The passively-managed fund targets the short-end of the yield-curve and tracks the NASDAQ LaddeRite 0-5 Year Corporate Bond Index. It normally aims to invest at least 80 percent of total assets in short-maturity fixed-rate bonds that had at least $500 million in debt outstanding at the time of issuance.
Laddering methodology involves grouping the index-constituent bonds by the years that are remaining to their maturity. For LDRI, allocations at the inception date were equally weighted across each year of the five resulting groups.
Individual positions within each of the five groups are determined using market-value weighting methodology and once set, the initial target-weights are free to float until the next reconstitution and rebalancing date. Bonds must have a minimum BBB- credit rating for consideration.
LDRI has an effective duration of 2.18 years, indicating low interest-rate risk while both yield-to-maturity and yield-to-worst come at 1.40 percent. The portfolio pays a weighted average coupon of 4.0 percent and is well diversified with 45 holdings.
The new fund is tilted toward financials with 44.32 percent allocation of total assets. Consumer staples (8.41 percent), energy (8.34 percent), consumer discretionary (6.79 percent), industrials (6.44 percent), health care (6.43 percent), information technology (6.38 percent), materials (6.12 percent), telecommunication (4.35 percent) and utilities (2.43 percent) all get single-digit allocations.
The fund has an annual expense ratio of 0.22 percent.
Disclosure: No holdings