Mackenzie partners with Solactive on currency-hedged EM bond ETF

Jul 25th, 2019 | By | Category: Fixed Income

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Canadian asset manager Mackenzie Investments has launched a new ETF which provides currency-hedged exposure to US dollar-denominated debt from emerging market issuers.

Michael Cooke Mackenzie

Michael Cooke, Senior Vice President and Head of ETFs, Mackenzie Investments.

The Mackenzie Emerging Markets Bond Index (CAD-Hedged) ETF (QEBH CN) has listed on Toronto Stock Exchange and comes with a management expense ratio of just 0.45%, the lowest among Canadian-domiciled emerging markets bond ETFs.

The fund is likely to appeal to investors who are searching for higher yields away from the low-interest-rate environment of developed markets and willing to accept higher risk for doing so.

Michael Cooke, Senior Vice President and Head of ETFs, Mackenzie Investments, commented, “Our new ETF is a strong option for investors seeking to diversify their portfolios and access the impressive growth taking place in the bond markets of emerging countries.

“Our prudent and measured investment approach helps minimize risk while offering investors a broad, competitively priced solution.”

The fund is linked to the recently unveiled Solactive EM USD Govt & Govt Related Bond Select CAD Hedged NTR Index which covers bonds issued by sovereign or government-related entities (regional & local government issuers, majority government-owned entities, and government agencies with a public mandate or a government debt guarantee).

Fixed-rate bonds, zero-coupon bonds, and sukuks are eligible, while global depositary notes, floating-rate notes, perpetual bonds, inflation-linked bonds, hybrid bonds, and bank capital bonds are not. Bonds must be issued in US dollars.

Each bond must have a minimum amount outstanding of $500 million and a remaining time to maturity of at least one year. The bond must also be able to settle on Euroclear, Clearstream, or DTCC.

Eligible countries are defined by Solactive’s Country Classification Framework which includes Saudi Arabia, South Korea, and Taiwan within its definition of emerging markets.

Constituents are weighted by market value outstanding and country exposure is capped at 7%. The index hedges currency exposure between the US dollar and the Canadian dollar. Rebalancing occurs monthly.

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