China Post Global has launched what it claims is the first euro-denominated contingent convertible (CoCo) bond ETF as demand grows.
The new Market Access Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index UCITS ETF was launched today (Monday) and provides diversified exposure to euro-denominated AT1 CoCo bonds.
It tracks the performance of the Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index, which is the institutional benchmark for the European AT1 bond sector.
Danny Dolan, managing director of China Post Global UK, said: "This is an exciting new ETF for which we’re seeing considerable demand from institutional investors.
"Investors appreciate its transparency and the lack of FX risk, as it’s a euro-denominated ETF providing exposure to a purely euro index. The ETF tracks the same iBoxx AT1 index used in the institutional swap market, and investors appreciate the additional liquidity this entails."
The ETF uses full physical replication and has a total expense ratio of 0.48 per cent.
The iBoxx index currently includes 40 bonds from 19 different issuers and selects and weights AT1 CoCo bonds based on their type, credit rating, liquidity, investability and time to maturity.
The denomination per share is €100,000 (£88, 216), as the ETF is only intended for institutional and professional investors.
The ETF will be listed on Euronext Amsterdam, the London Stock Exchange and SIX Swiss Exchange, and registered in the UK, Austria, Germany, Italy, Luxembourg, Netherlands and Switzerland.
Kusal Ariyawansa, financial planner at Appleton Gerrard, said he would expect more from such a fund. He added: "This is not a fund, strategy or style we use with our clients in afraid. At that expense ratio I'd want much more for the risk you see."
Darius McDermott, managing director at Chelsea Financial Services, said: "It’s overly complicated and unnecessary.
"It is the third ETF in this space which has been growing in popularity in the last few years due to the higher yields than other bonds and there has been a fair bit of issuance recently. Whether this market is liquid enough to sustain an ETF is questionable.
"While the ETF does filter based on certain factors, it will naturally be swayed by the largest bond issuers, and by definition the most levered banks and hold more of those."