ETF Securities and Lombard Odier Investment Managers have cross-listed four smart beta fixed income exchange-traded funds on the Borsa Italiana. The co-branded ETFs were launched on the London and Swiss stock exchanges last year, and have collectively amassed over $225m in assets under management.
Massimo Siano, Head of Southern Europe, ETF Securities (UK).
Massimo Siano, Head of Southern Europe, ETF Securities, commented: “We’re very pleased to be listing these ETFs on the Borsa Italiana. Italy is an important growth market for us and we are fully committed to making our products accessible to all investor types.
“Since our first launch on the Italian exchange in 2007 we have seen huge demand for even more innovative products from our clients and responding to their needs has always been central to our strategy.
“This is the first time that fundamental fixed income is available to Italian investors in an ETF wrapper and adding fixed income solutions to our already strong franchise across commodities, currency, specialist equity and short & leveraged ETPs is another milestone in delivering intelligent alternatives for investors.”
The ETFs provide fundamentally-weighted exposure to the euro corporate, global corporate, global government, and emerging market local government bond markets. Traditionally, fixed income indices have weighted constituents by the value of debt outstanding, meaning that issuers with the largest amount of debt receive the largest weights. By contrast, weighting constituents according to fundamental factors means that issuers who are better able to service the debt receive larger weights than those who are potentially less able.
For governments, the factors contributing to each fundamental score include the size of revenues measured by GDP, the level of indebtedness as identified by the debt-to-GDP ratio, along with indicators for fiscal and political stability. For corporate issuers, each sector’s contribution to the economy is looked at before assessing each individual issuer’s revenues, level of indebtedness, cash flow, EBITDA growth and asset quality.
The ETFs may also provide structural benefits when compared to other vehicles. “With bond liquidity increasingly being a source of concern for investors, investors in ETFs have extra liquidity support from the secondary market to help mitigate this,” noted Siano. “This liquidity support coupled with the ability to trade intraday makes the ETF an ideal access route into fixed income at a time when liquidity matters.”
Jérôme Collet, Senior Portfolio Manager, Fundamental Fixed Income at Lombard Odier IM, added: “Given the backdrop of sustained disinflation, low economic growth and heightened concern around liquidity, it is time for investors to redesign their fixed income exposure and to pay attention to the fundamental long-term quality and liquidity of bond investments. Rather than accessing opportunities through traditional market-cap benchmarks – which tend to reward leverage and can create bubbles, instead focus on the credit quality of liquid issuers at a reasonable price.”
The ETFS Lombard Odier IM Global Government Bond Fundamental GO UCITS ETF tracks the LOIM Fundamental Global Government Index. The index is a reference for long-only exposure to local denomination bonds, with a minimum one year to maturity, issued by global developed countries (those which are members of the Organization for Economic Cooperation and Development). Rather than maintaining static allocations, the index is adjusted on a monthly basis to take into account prevailing economic and market conditions. The fund has a total expense ratio (TER) of 0.25%.
The ETFS Lombard Odier IM Global Corporate Bond Fundamental GO UCITS ETF tracks the LOIM Fundamental Global Corporate Index by investing primarily in an optimized portfolio of investment grade corporate bonds denominated in US dollars, British pounds or euros. Eligible bonds must have a minimum 1.5 years until maturity and have at least EUR 500m, GBP 350m, or USD 500m outstanding. TER 0.35%.
The ETFS Lombard Odier IM Euro Corporate Bond Fundamental GO UCITS ETF tracks the LOIM Fundamental Euro Corporate Index and invests in an optimized portfolio of fixed-rate investment grade euro-denominated corporate bonds. Eligible bonds must have at least 1.5 years to maturity and EUR 500m outstanding. TER 0.30%.
The ETFS Lombard Odier IM Emerging Market Local Government Bond Fundamental GO UCITS ETF tracks the LOIM Fundamental EM Local Currency Index and provides long-only exposure to the debt of emerging markets. TER 0.55%.