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Lyxor Asset Management, Europe’s third largest provider of exchange-traded funds, has extended its fixed income line-up with the launch of double short ETFs linked to the government bonds of the United States, the United Kingdom and Japan.
The ETFs are two times inversely linked to the performance of each country’s benchmark 10-year government bond and thus provide investors with a tool to help protect their portfolios from rising interest rates.
The products could also be used for short-term speculative trading purposes by tactical investors anticipating a rise in rates.
For context, interest rates are broadly at levels not seen for 30 years, resulting in investment grade government bonds becoming relatively more exposed to downside risk. There is a greater need, therefore, for hedging tools to protect investors against a possible rises in long-term government bond rates by reducing overall portfolio duration.
The three ETFs, which are listed below, have been developed to respond precisely to this need. And thanks to their double short exposure, they allow for limited capital commitment for a given nominal amount to be hedged.
Lyxor UCITS ETF Daily Double Short 10Y US Treasury – C – USD
Lyxor UCITS ETF Daily Double Short 10Y Japan Govt Bonds – C-USD
Lyxor UCITS ETF Daily Double Short 10Y UK Gilts – C-GBP
Each fund has a total expense ratio (TER) of 0.20%.
The products complement Lyxor’s existing double short German bund and Italian BTP products, which have proved hugely popular. The Lyxor ETF Daily Double Short Bund has accrued assets of €600 million, while the Lyxor ETF Double Short BTP has accrued assets of €160 million.
Commenting on the launch, François Millet, Product line manager of ETF & Indexing at Lyxor, said: “At a time where we can expect higher volatility in bond prices, we think it is opportune to propose new tools to investors to protect their portfolios against the risk of rising interest rates. Such tools can help investors avoiding the operational constraints that come from investing in derivatives.”
Lyxor has more than $44 billion of ETF assets under management and is active on 13 regulated exchanges across the world.