With ten-year US Treasury yielding less than two percent, many investors – particularly the baby boomers and the retirees, are thirsty for higher returns from their fixed-income portfolios.
Unfortunately, with many developed economies turning to negative interest rates as a standard monetary policy tool, earning higher compensation for owning sovereign debt is becoming increasingly difficult.
Los Angeles based Cambria Investment Management, managed by alternative investment manager Meben Faber, recently launched its first fixed-income ETF to help meet investors’ craving for higher yields.
The newly launched Cambria Sovereign High Yield Bond ETF (SOVB) aims to provide income and capital appreciation by giving exposure to global sovereign and quasi-sovereign bonds with high yield characteristics. SOVB is Cambria’s seventh offering.
Most fixed-income funds are weighted by issue size, which results in the largest debtor cornering the biggest slice of investment portfolio. The new fund employs a quantitative approach to identify attractively valued securities with favorable risk-reward profiles and weights issuers by yield, not by issue size.
SOVB’s investment universe spans 45 developed and emerging economies, and limits individual country exposure to 10 percent.
While foreign bonds remain the largest asset class in the world, they remain grossly under represented in most investors’ portfolio. Unsurprisingly, the new fund is heavily tilted toward emerging market bonds. Due to their generally low credit rating, emerging economies offer higher coupons in order to compensate for greater investment risks involved.
At launch, more than 73 percent of SOVB’s holdings had maturities ranging from less than five years to 10 years while the remaining had maturity of 10 to 20 years. Apart from sovereign and quasi-sovereign fixed-income instruments, the fund can invest in such instruments that provide exposure to such securities, including exchange-traded funds ETFs), exchange-traded products (ETPs) and exchange-traded notes. Number of portfolio holdings currently stands at 38 for the new fund.
At 9.794 percent, India gets the fund’s largest country weight, followed by Indonesia (8.55 percent) and Brazil (8.03 percent). Income distribution for SOVB is scheduled on a quarterly basis.
The new fund charges 0.59 percent annually.
Disclosure: No holdings