Markit iBoxx index paves way for infrastructure bond ETFs

Aug 11th, 2016 | By | Category: Fixed Income

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Financial data provider IHS Markit, which has over $100bn in exchange-traded fund assets linked to its iBoxx index range, has launched a suite of four new indices targeting the fixed income securities of companies engaged in infrastructure development. The indices are suitable as underlyings for the development of index-linked investment products such as ETFs.

Markit iBoxx paves way for future infrastructure bond ETFs with new index launches

The Markit iBoxx Infrastructure indices track the performance of corporate bonds from firms in the energy, telecommunications, transportation and utilities sectors determined to be significantly engaged in the construction of infrastructure.

The Markit iBoxx Infrastructure indices track the performance of corporate bonds from firms in the energy, telecommunications, transportation and utilities sectors. The four indices reference corporate bonds across USD, GBP and EUR investment grade, or USD high yield.

Infrastructure investments have historically provided investors with a means to gain exposure to the long-term economic growth of a country, region, or globally. Trademark characteristics of firms operating in the space include stable cash flows, lower risk and lack of competition in the industry due to high barriers of entry. Historically low correlations to other assets highlights the further benefit of diversification to the investor.

The market for infrastructure debt continues to grow at a rapid pace – as measured by bonds from infrastructure-related sectors that are part of the Markit iBoxx USD, EUR and GBP Corporate indices, outstanding infrastructure debt has grown by over 60% in the past five years. This has led to increased investor demand for indices and investment products, such as ETFs, to cover the sector.

Ibrahim Kara, director of index research at IHS Markit, said: “The evolution of infrastructure investing has now reached the stage where it has become crucial to have access to high quality performance benchmarks that measure and track a wider investment opportunity. We are delighted to satisfy this industry demand with our latest indices.

“…Our experience in building new and innovative fixed income indices equips us to extend our iBoxx coverage to infrastructure investments.”

Markit harnessed the research and market expertise on infrastructure debt of Deutsche Asset Management, the firm behind the db X-tracker range of ETFs, for the development of the indices. The indices use a targeted classification system to provide investors with a dedicated benchmark for tracking the performance of infrastructure investments meeting specific criteria.

Jorge Rodriguez, head of Infrastructure Debt at Deutsche Asset Management, added: “Based on growing interest in the asset class, there was a need to develop a set of infrastructure debt indices which would allow investors to not only determine the role the asset class serves in a multiasset portfolio but to also value investments and measure performance.

“The new Markit iBoxx infrastructure indices provide investors with additional transparency to evaluate infrastructure debt risk and return from several perspectives — namely sector, credit quality, duration, geography, and currency — which allows them to underwrite infrastructure investments globally.”

The four new indices are:
Markit iBoxx EUR Infrastructure Index
Markit iBoxx GBP Infrastructure Index
Markit iBoxx USD Infrastructure Index
Markit iBoxx USD Liquid High Yield Infrastructure Index

While it may be some time before an ETF based on the Markit iBoxx infrastructure indices is launched, UK investors could consider the following locally-listed ETFs which provide access to the equities of companies engaged in infrastructure development.

The iShares Global Infrastructure 100 ETF (LSE: INFR), which offers exposure to the 100 largest stocks from developed and advanced emerging countries of the Macquarie Global Infrastructure Index. The fund has assets under management (AUM) of $450m) and a total expense ratio of 0.65%.

The db X-trackers S&P Global Infrastructure ETF (LSE: XSGI), linked to the S&P Global Infrastructure Index, offers another play on this theme. The index tracks the performance of 75 listed infrastructure companies from around the world across three distinct infrastructure pillars: utilities, transportation and energy. The fund’s AUM is $140m and its TER is 0.60%.

The ETFS US Energy Infrastructure MLP GO UCITS ETF (LSE: MLPI) tracks the Solactive US Energy Infrastructure MLP Index, providing a diversified exposure to the ‘midstream’ segment of the US energy infrastructure market by only including MLPs defined as infrastructure MLPs. The fund has assets under management (AUM) of $16m and a total expense ratio (TER) of 0.25%.

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