Invesco lists euro-hedged share class of AT1 CoCo bond ETF on Xetra

Jul 2nd, 2018 | By | Category: Alternatives / Multi-Asset

Invesco has listed a euro-hedged share class of its recently launched Additional Tier 1 (AT1) bond ETF on Deutsche Börse’s Xetra and Frankfurt exchanges.

Invesco launches euro-hedged share class of AT1 CoCo bond ETF on Xetra

The new share class mitigates currency risk relative to the euro.

The Invesco AT1 Capital Bond UCITS ETF EUR Hdg (XAT1 GY) provides exposure to contingent convertible (“CoCo”) bonds issued by European banks.

AT1 CoCos include a mechanical trigger that can write-down the value of the bond or convert it to common equity based on the issuing firm’s level of capital.

CoCo bonds generally offer higher yields than investing in senior bank debt – the ETF’s effective yield is currently 6.3% – and can offer some risk mitigation benefits with regard to rising interest rates and portfolio diversification.

The ETF is linked to the Markit iBoxx USD Contingent Convertible Liquid Developed Market AT1 (8/5% Issuer Cap) Index which focuses on the US dollar-denominated AT1 bond market, the deepest and most liquid in which European banks issue AT1 bonds. A currency hedge within the share class minimises the effect of fluctuations between the dollar and the euro.

The index offers exposure to over 80% of European banks by market cap, including all of the largest issuers. The top five issuers in the index are each capped at 8% and the remaining issuers are capped at 5%.

In order to be admitted to the index, bonds must have a nominal value of at least $750 million and the issuer an outstanding nominal volume of at least one billion in its national currency.

The fund has a total expense ratio of 0.39%, the same cost as the unhedged Invesco AT1 Capital Bond UCITS ETF (AT1 LN) which debuted on London Stock Exchange earlier this month.

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