LOIM, ETF Securities introduce GBP currency-hedged share class for smart beta corporate bond ETF

Jan 13th, 2016 | By | Category: Fixed Income

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Lombard Odier Investment Managers (LOIM), a smart beta investment manager, and ETF Securities, an exchange-traded fund provider, have announced the introduction of a GBP currency-hedged share class for their fundamentally-weighted global corporate bond ETF: ETFS Lombard Odier IM Global Corporate Bond Fundamental GO UCITS ETF (CRED LN).

Lombard Odier and ETF Securities offer GBP-hedging for its Global Corporate Bond Fundamental ETF

Howie Li, Co-Head of CANVAS, ETF Securities.

The currency-hedged option provides a means of gaining exposure to foreign corporate bonds while providing greater investor protection against the impact of adverse currency movements, thus achieving a purer exposure to the underlying asset.

The fundamentally-weighted index tracked by the ETF is based on the principle that bond investors are lenders and should consider a borrower’s capacity to repay their debts rather than their capacity to borrow more. The index assesses fundamental factors and, in the case of corporate issuers, each sector’s contribution to the economy is contemplated by the index methodology along with each individual issuer’s revenues, level of indebtedness, cash flow and asset quality. Lombard Odier IM and ETF Securities believe this approach produces a more favourable balance between risk and return for investors.

Kevin Corrigan, Head of Fundamental Fixed Income at Lombard Odier IM, commented: “The continuing volatility of currency markets has driven bond investors to seek solutions which provide greater protection from adverse fluctuations in foreign-exchange rates. By using a hedged share class, an investor is safeguarded from a divergence in performance between the index returns in its local currency and the returns of a non-hedged ETF product that is listed in a different currency.  The ongoing success of the partnership with ETF Securities has added to our ability to develop these solutions which directly address investor needs.”

Howie Li, Co-Head of CANVAS, ETF Securities, added: “With increased currency volatility in 2015 that’s likely to continue this year, portfolio managers have become keenly aware of the impact of foreign exchange movements in their portfolios.  This latest development in our range of smart beta fixed income ETFs is in response to the investment community’s need to manage their currency risk.  ETPs are proving a popular choice for currency and currency-hedged investments.”

As of 4 January 2016, the fund has significant exposure to issuers in the financial (21.0%), consumer staples (20.7%), industrial (14.4%) and consumer discretionary (11.1%) sectors. The most common issuer credit rating is BAA2 (24.4%), BAA1 (19.7%), BAA3 (17.2%) and A2 (14.5%). The major country exposures are the US (37.2%), the UK (16.1%), the Netherlands (9.2%) and France (9.1%).

LOIM and ETF Securities began their partnership in March 2015, subsequently introducing a range of transparent, cost-effective and UCITS-compliant fundamentally-weighted fixed income ETFs across several European exchanges. These include:

ETFS Lombard Odier IM Global Corporate Bond Fundamental GO UCITS ETF
ETFS Lombard Odier IM Euro Corporate Bond Fundamental GO UCITS ETF
ETFS Lombard Odier IM Global Government Bond Fundamental GO UCITS ETF
ETFS Lombard Odier IM Emerging Market Government Bond Fundamental GO UCITS ETF
ETFS Lombard Odier IM Euro Government Bond Fundamental GO UCITS ETF

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