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Just a slender $9 trillion niche for a new ETF

Posted by: Aaron Pressman on October 8, 2007

As I lie around all day trying to recover from knee surgery last week (don’t ask!) looking for diversions, there’s plenty of life in the world of exchange traded funds to keep me busy. With hundreds of ETFs already trading, it can be a little overwhelming separating the wheat from the chaff. In fact, it’s a little too easy to whine about less than super useful new ETFs. Fine. But there are still useful niches, sectors and even whole markets awaiting their own easy-to-trade, low-cost index-based fund.

Today’s case in point is State Street’s SPDR Lehman International Treasury Bond ETF (Symbol: BWX). This index is comprised of government bonds from a whole bunch of countries other than the United States denominated in a whole bunch of currencies other than the U.S. dollar. Timely, too. And this is the very first ETF covering this $9 trillion market — the first.

Where does this fit into a portfolio? It’s a fixed income product so it’s likely to have far less volatility than a foreign stock fund. It’s also a hedge against further declines in the dollar. And it’s index based with an expense ratio of 0.5%, so it’s cheaper than many alternatives. Credit quality is high — these are bonds issued by the likes of Japan, Italy and South Africa. No junk bonds here. The underlying index yields about 4%, without counting fund expenses, so this fund is not going to be a huge income provider.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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