ETF Securities, a London-headquartered exchange-traded fund provider, and Lombard Odier Investment Managers (LOIM), a leading smart beta specialist, have begun to roll out their co-branded smart beta fixed income ETF range on the SIX Swiss Exchange.
ETF Securities and LOIM have made their fundamentally weighted fixed income ETF range available on the SIX Swiss Exchange.
The newly listed ETFs offers investors exposure to euro corporate, global corporate, global government and emerging market local government bonds using an alternative weighting strategy based on fundamental factors.
Bernhard Wenger, Co-Head of European Distribution, ETF Securities commented: “We’re very pleased to be listing these ETFs on the SIX Swiss Exchange. Switzerland is an important growth market for us and we are fully committed to making our products accessible to all investor types. This is the first time that fundamental fixed income is available to Swiss investors in an ETF wrapper and we look forward to launching further offerings in the future.”
The funds were listed on the London Stock Exchange earlier this year and have so far amassed over $100m in assets under management. The range includes the ETFS Lombard Odier IM Euro Corporate Bond Fundamental GO UCITS ETF (FWEC SW), the ETFS Lombard Odier IM Global Corporate Bond Fundamental GO UCITS ETF (CRED SW), the ETFS Lombard Odier IM Global Government Bond Fundamental GO UCITS ETF (CORE SW) and the ETFS Lombard Odier IM Emerging Market Local Government Bond Fundamental GO UCITS ETF (LOCL SW).
Traditionally, passive fixed income strategies have allocated to constituents based on market capitalisation which often leads to significant exposures to the issuers with the most debt. This alternative approach assesses constituents based on their ability to repay debt.
According to ETF Securities and Lombard Odier, this encourages bond investors to think of themselves as lenders and the strategy prioritises a borrower’s capacity to repay their debts, rather than their capacity to borrow more. They believe this methodology of portfolio construction produces a more favourable balance between risk and return for investors.
“At a time of heightened uncertainties around certain markets and investors’ concerns around liquidity, it makes more sense than ever to pay attention to the long-term quality and liquidity of bond investments. Our approach is designed to look first-and-foremost at the credit quality of liquid issuers at a reasonable price,” said Jérôme Collet, Senior Portfolio Manager, Fundamental Fixed Income at Lombard Odier IM.
In the case of government debt, the factors which drive the constituent weighting scheme include size of revenues measured by GDP, level of indebtedness utilising debt-to-GDP, 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 and asset quality.
The funds are listed on the SIX Swiss Exchange and have total expense ratios ranging from 0.25%-0.55% per annum. Currency-hedged versions of the funds are expected to be released later this year.