BNP Paribas launches distributing share class for defensive European high yield bond ETF

Feb 13th, 2018 | By | Category: Fixed Income

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BNP Paribas has introduced a distributing share class for the BNP Paribas Easy High Yield Europe Defensive UCITS ETF, a recently launched fund offering exposure to the European high yield credit market while hedging against market downturns through the use of a protective put strategy.

BNP Paribas launches distributing share class for defensive European high yield bond ETF

The fund’s strategy offers exposure to the European high yield credit market while hedging against market downturns

A protective put is a risk-management strategy that acts like an insurance policy — it consists of a long investment in a security and the purchase of puts (insurance contracts) on the value of the security. The strategy costs money (the premium paid to own the option), which reduces the investor’s potential gains from owning the security; however, the strategy also reduces the risk of losing money if the security declines in value.

The fund synthetically tracks an index created in-house by BNP Paribas’s indexing division. It provides a long exposure to a volatility-controlled version of the BNP Paribas High Yield Europe 5Y Credit Index, which tracks iTraxx Crossover, a Markit index giving exposure to the below-investment-grade European credit market. The risk-control mechanism inherent in the methodology seeks to cap index volatility at 9%. The strategy simultaneously goes long a portfolio of put options linked to the performance of this volatility-controlled index.

The new share class, trading under the ticker HYDI FP, distributes to investors income generated within the fund and serves as a complement to the original accumulating share class which launched in October 2017 under the ticker HYPE FP. Both share classes trade on Euronext Paris.

Commenting at the time of the fund’s original launch, Isabelle Bourcier, global head of ETF & index solutions within BNP Paribas Asset Management, said, “BNP Paribas Asset Management is the first to provide a systematic solution offering high yield exposure while protecting downside risk and minimising cost of capital. The BNP Paribas Easy High Yield Europe Defensive UCITS ETF offers investors an attractive yield, while the systematic hedge embedded in our solution decreases the cost of capital by more than 70% under Solvency II, making this ETF ideally suited to the needs of insurers.”

The fund trades in euros and has an ongoing charge of 0.40%.

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