Lyxor Asset Management has launched a new ETF delivering access to a global portfolio of government bonds issued by leading developed market countries.
Philippe Baché, Head of Fixed Income at Lyxor ETF.
The Lyxor Core Global Government Bond (DR) UCITS ETF has listed on London Stock Exchange in US dollars (GOUD LN) and pound sterling (GOVD LN).
The fund expands Lyxor’s range of so-called ‘Core’ ETFs – mainstream portfolio exposures that are designed to serve as low-cost portfolio building blocks.
The ETF comes with an expense ratio of just 0.09% and has been seeded with £17.5 million. It is also available on Borsa Italiana through a euro-hedged share class (GOVG IM) which comes with an expense ratio of 0.15%.
Income is distributed to investors.
Methodology
The fund tracks the FTSE World Government Bond Index (WGBI) DM G7 EMU Index through physical replication using a sampling process.
The WGBI measures the performance of fixed-rate, local currency, investment-grade sovereign bonds.
The index underlying the ETF tracks a sub-set of the WGBI by focusing on bonds issued by G7 nations as well as other developed market countries that are part of the Economic and Monetary Union of the European Union.
The US accounts for the largest country exposure at 39.2%, followed by Japan (18.7%), France (8.8%), Italy (7.9%), Germany (6.5%), the UK (5.6%), Spain (5.2%), and Belgium (2.2%).
Bonds rated AA make up 58.3% of the total index weight, while the next largest credit buckets are A (20.4%), BBB (11.5%), and AAA (9.8%).
The index is presently yielding just 0.28%, a product of record-low interest rates globally and yields on German and Japanese debt in negative territory for shorter maturities. The effective duration of the index is 8.8 years.
Philippe Baché, Head of Fixed Income at Lyxor ETF, commented, “This could be an efficient way to own a diversified government bond portfolio in one low-cost ETF. FTSE Russell is well known for its quality government bond indices. We have included a FX hedging mechanism as it can reduce volatility and tends to improve the risk profile over the long term.”
Lyxor introduced its range of Core ETFs in March 2018. The suite covers the major equity markets (world, UK, Europe, US and Japan) as well as gilts, Treasuries, and TIPS on the fixed income side. Total expense ratios for the funds start at just 4 basis points.