Invesco launches suite of euro government bond ETFs in Europe

Sep 2nd, 2019 | By | Category: Fixed Income

Invesco has launched a suite of five fixed income ETFs in Europe providing low-cost exposure to the euro-denominated government bond market.

Invesco launches suite of euro government bond ETFs in Europe

Invesco has launched five of the lowest cost Euro government bond ETFs in Europe.

The funds track Bloomberg Barclays indices through physical sampling replication and offer a range of maturity exposures.

One of the funds provides all-maturity exposure while the other four target precise maturity segments, specifically 1-3 years, 3-5 years, 5-7 years, and 7-10 years.

They are the Invesco Euro Government Bond UCITS ETF (EIBB GY; EIBB IM), the Invesco Euro Gov Bond 1-3 UCITS ETF (EIB3 GY; EIB3 IM), the Invesco Euro Gov Bond 3-5 UCITS ETF (EIB5 GY; EIB5 IM), the Invesco Euro Gov Bond 5-7 UCITS ETF (EIB7 GY; EIB7 IM), and the Invesco Euro Gov Bond 7-10 UCITS ETF (EIBX GY; EIBX IM).

The funds trade in euros on Deutsche Börse Xetra and Borsa Italiana and distribute income on a quarterly basis.

The all-maturity ETF tracks the Bloomberg Barclays Euro Treasury Majors Bond Index which targets the broad euro-denominated government bond market by including countries with over €50 billion in issuance. Issuers include the governments of Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal, and Spain.

The maturity-targeted ETFs track Bloomberg Barclays Euro Government Select Indices that include only bonds issued by the five most liquid economies in the Eurozone, namely France, Germany, Italy, the Netherlands, and Spain.

The underlying indices consist of fixed-rate, investment-grade sovereign debt issued in euros. Individual securities must have a minimum par outstanding of at least €300 million to be eligible for selection. The indices are rebalanced on a monthly basis.

The funds each come with expense ratios of just 0.10%, which positions them at the cheaper end of the fee scale of similar funds. Indeed, the four maturity-based ETFs are the most competitively priced in Europe, matched only by the €70m JPMorgan BetaBuilders EUR Govt Bond 1-3 yr UCITS ETF (JE13 GY) from JP Morgan Asset Management.

The all-maturity ETF is a little less competitive, coming in one basis point more expensive than the €3.4bn category-leading Xtrackers II Eurozone Government Bond UCITS ETF (X03F GY) from DWS and five basis points more expensive than the €60m Amundi Prime Euro Govies UCITS ETF (PR1R GY) from Amundi, which costs just 0.05%. However, at single-digit-basis-point-TER levels the marginal benefit of additional fees savings is much diminished and outweighed by structural considerations such as fund design, liquidity, and appropriateness.

Paul Syms, Head of EMEA ETF Fixed Income Product Management at Invesco, said, “Many investors have European government bonds for core allocation to diversify and reduce their portfolio volatility. We have developed these new ETFs with the aim of delivering the right balance between performance and broad market exposure. In addition, given the persistent low yields in Europe, we believe the low costs of these ETFs will attract investors who are increasingly price-sensitive.”

Syms added, “With $33bn in AUM, euro government bonds is the second-largest fixed income ETF category in Europe. Over the past 12 months, there has been in excess of $5bn of flows into this sector and, in today’s uncertain environment, we would expect this allocation to increase as investors adjust their risk profiles. Currently, we believe the backdrop for euro government bonds is supportive, with the European Central Bank expected to announce further easing in the September meeting.”

Invesco has been busy in 2019 building out its fixed income offering. In January, it launched Europe’s cheapest US Treasury bond ETFs and followed up in March with the introduction Europe’s lowest cost gilts ETFs.

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