Invesco launches European bond ETF

Invesco launches European bond ETF
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Invesco has launched a fixed income ETF giving access to debt issued by European banks.

The fund will track the performance of additional tier one (AT1) capital bonds issued by European banks. 

AT1 bonds are contingent convertible bonds, which include a mechanical trigger that can write-down the value of the bond or convert it to common equity based on the issuing firm's level of capital.

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The Invesco AT1 Capital Bond Ucits ETF, which is US dollar denominated, will cover 52 securities, with an average rating of BB and an effective yield of 6.3 per cent

The top three European banks tracked by the index are HSBC, UBS and Société Générale.

Nicolas Samaran, head of EMEA ETF innovative product development at Invesco, said: "European banking AT1 assets have become more attractive for investors who are comfortable moving up the risk curve in the search for higher yields.

"The index has historically delivered low correlation to other asset classes, allowing investors to diversify their income strategy. In addition, credit exposure and yield are driven by subordination, rather than risky issuers, and a dollar-denominated instrument provides greater diversification and more choice at a lower cost for investors."

Patrick Connolly, head of communications at Chase de Vere, said the ETF is a specialist product that gives a higher yield and more growth potential than most fixed interest holdings "although with that comes greater risks".

He said: "An increasing number of advisers are understanding the benefits of including passive holdings in their client portfolios, whether that is ETFs or trackers, to attain low cost exposure to a particular asset class or sectors.

"It is an investment which may be considered by some discretionary managers although is unlikely to merit serious consideration for most financial advisers or their clients."