The new Ucits-compliant ETF provides diversified exposure to euro-denominated AT1 contingent convertible (CoCo) bonds, and the group said it was the first ever euro-based ETF tracking a European bank CoCo bond index.
The fund will track the performance of the Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index – a benchmark for the European AT1 bond sector.
The index selects and weights additional tier 1 (AT1) CoCo bonds based on their type, credit rating, liquidity, investability and time to maturity.
China Post Global is an international asset management arm of Hong Kong-headquartered China Post & Capital Fund Management and is representative of the growing trend for Chinese asset managers to launch Ucits or alternative investment funds in Europe.
“It’s a euro-denominated ETF providing exposure to a purely euro index,” said Danny Dolan, a managing director at China Post Global.” The ETF tracks the same iBoxx AT1 index used in the institutional swap market, and investors appreciate the additional liquidity this entails.”
The ETF uses full physical replication and has a total expense ratio of 0.48%.
CoCo bonds are a type of bond that may either convert into shares of the issuer or be written down in value partly or fully, following a predefined trigger event. A trigger event typically means a specific capital ratio of the issuer falling to a specific level, or the issuer’s regulator decreeing that the bond be triggered.
Because of the risk of conversion or write-down, CoCo bonds typically have a higher coupon than regular bonds from the same issuer, and are therefore attractive to many institutional investors who seek higher yield and can accept the additional risk.
The iBoxx index currently includes 40 bonds from 19 different issuers. The denomination per share is €100,000, as the ETF is only intended for institutional and professional investors. The minimum creation and redemption amount is €1 million, significantly lower than other CoCo ETFs.
The Market Access Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index Ucits ETF will be listed on Euronext Amsterdam, the London Stock Exchange and SIX Swiss Exchange, and registered in the UK, Austria, Germany, Italy, Luxembourg, Netherlands and Switzerland.