SSgA launches SPDR Citi Asia Local Government Bond ETF

May 14th, 2012 | By | Category: Fixed Income

State Street Global Advisors (SSgA) has continued the expansion of its European SPDR ETF range with the launch of the SPDR Citi Asia Local Government Bond ETF, an Asia-focused bond fund with a strong emerging markets bias.

SSgA launches SPDR Citi Asia Local Government Bond ETF

The SPDR Citi Asia Local Government Bond ETF is designed to reflect the performance of the local currency government debt markets of various Asian countries, including Malaysia (pictured).

The SPDR Citi Asia Local Government Bond ETF, which has been listed on the Deutsche Börse (Xetra) and the London Stock Exchange, is designed to reflect the performance of the local currency government debt markets of various Asian countries. The fund aims to achieve this by tracking the Citi Asian Government Bond Investable Index.

The Citi Asian Government Bond Investable Index currently measures the performance of Asian government bonds, excluding Japan, issued by the governments of China (offshore issues), Hong Kong, Indonesia, South Korea, Malaysia, Philippines, Singapore, and Thailand.

With Europe in the midst of a sovereign debt crisis and the US economy showing few signs of meaningful improvement, the fund is likely to prove popular with investors seeking a decent yield backed by solid fundamenetals.

Moreover, Joep Huntjens, a portfolio manager specialising in Asian debt at ING Investment Management in Singapore, says that: “investors are still underestimating the opportunities over the long term. Asia is the fastest growing region in the world and we expect that to remain so in the years to come. Economic fundamentals in Asia are much stronger than in the US and Europe which is an added benefit in current circumstances. Strong FX reserves and current account surpluses also provide good upward potential for Asian currencies over the medium term.”

Commenting on the launch, Eleanor Hope-Bell, head of SSgA’s intermediary sales for the UK, said: “The Asian market is particularly strong at the moment. Domestic demand and global competitiveness is increasing whilst structural reforms and prudent policies have led to greater stability and sustainability. These growth trends, alongside currency development, structural trade surpluses and growth differentials with industrialised nations have laid the foundation for an attractive investment base.”

Thomas Klaffky, global head of business development and head of the Americas at Citi, said: “We are very pleased to grow our partnership with SSgA by working together on the SPDR Citi Asia Local Government Bond ETF. We believe that investors will find this ETF an attractive way to get exposure to the rapidly-growing economies of Asia.”

As of 30 April 2012, the Citi Asian Government Bond Investable Index had 183 constituents with an average maturity of 7.9 years. The country weights were South Korea 20.0%, Malaysia 19.6%, Thailand 17.6%, Indonesia 15.9%, Singapore 15.0%, Philippines 8.9%, Hong Kong 2.7% and China (offshore) 0.8%. The yield to maturity was 3.68%.

The index uses a market-capitalisation weighting approach, with an individual country cap of 20%, thus reducing over-exposure to a particular government. In addition, only bonds with a maturity of greater than one year and a rating of at least C by S&P or Moody’s are included.

The fund is UCITS IV compliant, registered for sale in France, Germany, Ireland, Italy, Netherlands and the United Kingdom, and can be traded in EUR on the Deutsche Börse (primary listing) and in GBP or USD on the London Stock Exchange. The exchange tickers are SYBX, ABND and ASIA respectively. It is eligible for ISAs and SIPPs, and is in the process of obtaining UK Reporting Status.

The fund, which will be managed by SSgA’s specialist Asia fixed income team located in Singapore, is physically backed and employs a sampled-replication methodology to track the index. It has a total expense ratio (TER) of 0.50% per annum.

The fund will compete against the London-listed iShares Barclays Capital EM Asia Local Govt Capped Bond ETF (SGEA), which tracks the performance of the Barclays Capital Emerging Markets Asia Local Currency Govt Country Capped Index.

SGEA (TER 0.50%) also provides exposure to local currency government debt issued by countries in Asia, but is slightly less broad and more emerging market oriented, covering only Indonesia, Malaysia, Philippines, South Korea and Thailand (i.e. excluding the more developed markets of Hong Kong and Singapore).

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