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It Turns Out It Would Be Really Easy to Issue Foreign Bond ETFs
Friday, February 04 2011 | 04:20 PM
Chief Investment Officer,
YOUR SOURCE FINANCIAL (RIA)
|For a while I've been writing about the importance of foreign fixed income exposure in a diversified portfolio, how we integrate this space into our client portfolios and how easy it would be for ETF providers to make real inroads here in offering exposure. What exits now are some broad based funds that are usually heavy in Japan because Japan has issued the most debt (kind of market cap weighted by total debt issued). There are a couple of emerging market bond ETFs that are better holds, IMO.
Well it turns out that iShares offers a lot of foreign bond ETFs in other markets. For example in Canada iShares offers seven ETFs that own Canadian bonds. iShares UK offers more funds than can be counted in GBP and euros in all sorts of fixed income categories. I am aware of one other iShares site, that being for Hong Kong but there are no bond ETFs available on that site.
It might be a case where the company may not want to commit the capital to seeding US versions of these funds which would be reasonable given that embracing truly new segments of the market can be difficult for many investors (there are many advisors who still use an OEF equivalent of SPY, IWM and EFA). The solution here might be some sort of blurring of the lines between exchanges such that anyone so inclined could buy the iShares DEX Universe Bond Index Fund which has ticker XBB in Toronto but apparently no pink sheet symbol for US trading.
This would of course be a big evolutionary step but not completely unprecedented, it is pretty easy to buy Canadian common stocks through Schwab and they are about the worst for accessing foreign stocks and of course Fidelity, Interactive Brokers and eTrade offer access. There are different rules for funds but it seems to me to be a legal solution that if implemented intelligently would be much less capital intensive than seeding a bunch of new funds.
In my opinion this is something that is going to evolve such that the access is made available one way or another. For now it may be a demand issue in that I think there is failure to recognize the need by too many people but the exposure is important even if people are slow to realize.
On a possibly related note, IndexUniverse reported that iShares had filed in the US for a foreign preferred stock ETF that is 73% Canadian issues.
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