Tech rout turns $279M credit ETF into biggest laggard

The worst day for chipmakers in seven weeks hit a far-flung corner of the bond market where the industry is a favorite.

The biggest decliner among U.S. exchange-traded fixed-income funds was the iShares Convertible Bond ETF (ICVT) which fell 2.2% Monday to its lowest since February. The ETF tracks U.S.-dollar denominated convertible bonds, a type of debt many fast-growing tech firms — including chipmakers — rely on for cheap financing.

The Shares Convertible Bond ETF tracks U.S.-dollar denominated convertible bonds, a type of debt many fast-growing tech firms — including chipmakers — rely on for cheap financing.
A machine places single solder balls onto a printed circuit board (PCB) during manufacture at the Infineon Technologies AG microchip and sensor facility in Regensburg, Germany, on Wednesday, Feb. 17, 2016. Infineon designs, manufactures and markets semiconductors for the automotive, industrial, communications, consumer and security electronics sectors. Photographer: Krisztian Bocsi/Bloomberg

The $279 million fund has its heaviest weighting in the semiconductor industry, with debt issued by firms such as Intel and Microchip Technology making up 17.9% of its portfolio. Internet companies come next, with a 15.8% weighting.

Convertible bonds can be sensitive to stock prices, as the securities turn into equity as long as the shares are trading above a conversion price at maturity. In fact, the price of the iShares ETF has closely tracked the performance of the S&P 500 Information Technology Index this year, though a slew of investors still buy the bonds even if they don’t expect to receive shares at maturity.

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While outpacing the S&P 500, the price tag is higher — the average expense ratio is more than 1%.

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Semiconductor firms fell 4.4% Monday, their worst performance since Feb. 8, after a report that Apple plans to start using its own chips rather than processors made by Intel as soon as 2020.

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