Sydney-based ETF issuer BetaShares has unveiled a new fixed income ETF that invests in long-term government bonds issued by some of the largest developed economies in the world.

The fund hedges exposure between the currencies of the G7 countries and the Australian dollar.

The BetaShares Global Government Bond 20+ Year ETF – Currency Hedged (GGOV AU) has listed on the Australian Securities Exchange and comes with a management fee of 0.22%.

Income is distributed to investors on a quarterly basis.

The fund offers attractive diversification features when held alongside equities in a multi-asset portfolio.

It may also serve as a defensive tool due to the combination of high credit quality and long duration, given that interest rates and bond yields tend to decline in periods of equity market weakness.

Methodology

The fund is linked to the S&P G7 Sovereign Duration-Capped 20+ Year AUD Hedged Bond Index which includes local currency bonds issued by the central governments of G7 countries.

The Group of Seven (G7) is an economic organisation consisting of the seven largest ‘advanced’ economies in the world: US, Japan, UK, Germany, France, Italy, and Canada.

Bonds must have a remaining maturity of at least 20 years. Fixed-rate, zero-coupon, step-up, and fixed-to-floating securities are eligible for inclusion.

At each monthly rebalance, the index weights constituents by market value outstanding while capping the dollar duration contribution of any country at 25%.

Exposure to the currencies of G7 countries is hedged back to the Australian dollar.

As of 30 April 2020, the largest country exposures in the index were the US (27.9%), Japan (22.7%), and the UK (21.9%), followed by France (11.3%) and Germany (7.5%).

Roughly two-thirds of the index’s exposure is dedicated to bonds rated AAA (37.7%) and AA (33.2%) with a further quarter (22.7%) in bonds rated A+. The remainder (6.4%) is in bonds rated BBB.

The index has a yield to maturity of 0.96% and a modified duration of 21.3 years.