ProShares launches high-quality corporate covered bond ETF (COBO)

May 23rd, 2012 | By | Category: Fixed Income

ProShares, a US-based provider of alternative ETFs, has announced the launch of the ProShares USD Covered Bond ETF (COBO). This new ETF is the only corporate bond fund – mutual fund or ETF – in the US with substantially all of its assets rated AAA.

ProShares launches high-quality corporate covered bond ETF (COBO)

Covered bonds are a type of collateralised corporate debt issued by non-US financial institutions. They are often backed by cash flows from mortgages secured on property, but, unlike MBSs, the underlying assets remain on the issuer’s balance sheet.

COBO invests in covered bonds, a type of collateralised corporate debt typically issued by non-US financial institutions. Covered bonds are popular investments outside of the US but previously have not been broadly accessible in the US.

Covered bonds are different from typical corporate debt in that, in the event of a default, covered bondholders not only have a senior unsecured claim against the issuer, but also a preferential claim to a segregated, actively maintained “cover pool” of assets.

The dual coverage from the issuer and the cover pool typically makes covered bonds a high-credit-quality investment. COBO focuses exclusively on the highest-rated covered bonds.

“Many investors are interested in high-credit-quality bonds, but the supply of AAA-rated corporate debt in the US is very limited,” said Michael Sapir, Chairman and CEO of ProShare Advisors. “COBO, a first-of-its-kind ETF, fills the gap by accessing the highest-rated segment of the $3 trillion, 240-year-old covered bond market.”

COBO seeks to match the performance of the BNP Paribas Diversified USD Covered Bond Index, before fees and expenses. The index tracks the performance of a portfolio of AAA-rated covered bonds, which are denominated in US dollars. Each bond must be AAA-rated by at least one independent rating agency.

As at 31 March 2012, the BNP Paribas Diversified USD Covered Bond Index had 36 constituents, with a weighted-average maturity of 3.33 years. Its weighted-average yield to maturity was 1.48%.

The fund is listed on the NYSE Arca and comes with an expense ratio of 0.35%.

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