UniCredit and Axiom Alternative Investments have announced the launch of the UC AXI Global CoCo Bonds UCITS ETF, the first global exchange-traded fund (ETF) to provide market weighted exposure to the contingent convertible (CoCo) bond market.
The ETF will be listed on Deutsche Börse Xetra.
The UC AXI Global CoCo Bonds Ucits ETF is the first ETF to provide investors with access to the entire liquid CoCo bond market, including Additional Tier 1 (AT1) and Restricted Tier 1 (RT1) capital instruments.
The ETF will track the performance of the Euro-hedged Solactive AXI Liquid Contingent Capital Global Market TR Index, the first index to provide a currency hedged market-weighted exposure to the global CoCo Bond market
The ETF has been designed to offer the most scalable and liquid exposure to the CoCo bond universe, the groups said in a statement.
It is the largest CoCo index in the market by capitalisation €141bn reflecting the performance of EUR and USD denominated AT1 and RT1 bonds (123 bonds).
Contingent convertible instruments can be an alternative investment opportunity to high yield corporate bonds and bank stocks, the groups said in a statement, as they can offer higher yields alongside a better credit profile (AT1 EUR-denominated bonds are rated on average BB, while the average rating for HY corporate bonds is BB-).
The UC AXI Global CoCo Bonds Ucits ETF has been developed and launched in cooperation with Axiom Alternative Investments – an independent asset manager which specialises in instruments issued by financial institutions.
Laurent Dupeyron, Managing Director, UniCredit, said: “Today’s announcement is a major development for our institutional investor base who can now gain market-weighted exposure to the CoCo universe in an easy and cost-effective manner while still benefiting from a Ucits structure.”
David Benamou, founder and chief Investment officer of Axiom AI added: “We see the current market environment as very attractive for a number of reasons. With the latest bank stress tests showing capital levels in excess of 3% above the conversion trigger, coupled with the current upgrade momentum for European banks by rating agencies, these developments represent very positive signals for the asset class moving forward.”