UBS rolls out two inflation-linked euro government bond ETFs

Nov 23rd, 2017 | By | Category: Fixed Income

UBS Asset Management has continued to roll out its two new fixed income ETFs – which provide exposure to different maturity segments of the inflation-linked euro government bond universe – by listing the funds on London Stock Exchange and SIX Swiss Exchange. The funds are also available on Deutsche Börse.

UBS unveils two inflation-linked euro government bond ETFs

Inflation-linked bonds adjust their principal amount based on changes to an underlying price index.

The UBS Bloomberg Barclays Euro Inflation Linked 1-10 UCITS ETF (UBIF LN) tracks the Bloomberg Barclays Euro Government Inflation-Linked 1-10 Year Index and provides exposure to investment grade bonds situated at the front end of the maturity curve with a term of between one and ten years. Its total expense ratio (TER) is 0.20%.

The fund is now available to trade on London Stock Exchange in pounds sterling and on Deutsche Börse and SIX Swiss Exchange in euros.

The UBS Bloomberg Barclays Euro Inflation Linked 10+ UCITS ETF (FRC4 GY) provides exposure to the longer-duration end of the maturity spectrum by tracking the Bloomberg Barclays Euro Government Inflation-Linked 10+ Year Index. The fund’s TER is also 0.20%, and is available to trade on Deutsche Börse and SIX Swiss Exchange in euros.

Inflation-linked securities differ from regular government securities in that the principal amount of the issue is adjusted over time to reflect changes in an underlying price index.

Although the coupon rates of these issues are generally fixed throughout their life, the principal amount varies over time in response to the rate of inflation. As such, increases in inflation correspond to increased principal amounts and therefore coupon payments. Investors should note, however, that decreases in inflation would lower the value of the coupon and principal payments.

The funds will compete with the iShares € Inflation Linked Govt Bond UCITS ETF (IBCI LN) which provides exposure to inflation-linked bonds from across the maturity curve issued by eurozone governments. IBCI has €1.1bn in AUM and a TER of 0.25%.

The fund tracks the Bloomberg Barclays Euro Government Inflation-Linked Bond Index, an amalgamation of the two indices underlying the new UBS products. The primary issuers within the index are the governments of France (46.1%), Italy (31.1%), Germany (13.9%) and Spain (8.9%). The credit quality with the largest weight in the portfolio is AA at 46.1%, followed by bonds rated BBB (40.0%) and AAA (13.9%). The index’s effective duration is 8.2 years.

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