Morningstar introduces global fixed income index suite

May 21st, 2019 | By | Category: Fixed Income

In a further bid to shake up the indexing space, Morningstar has introduced a comprehensive suite of fixed income indices that track the performance of all major global bond market asset classes.

Sanjay Arya, Global Head of Morningstar Indices

Sanjay Arya, Head of Indexes at Morningstar.

The Morningstar Fixed Income Indices cover Treasury, inflation-protected, government-related, corporate, securitized/covered, mortgage-backed, collateralized mortgage-backed, asset-backed, and covered-bond exposures.

Aggregate indices are also available for ‘core’ regions including the US, Canada, UK, European Union, Japan, Australia, Switzerland, Sweden, and emerging markets.

Meanwhile tenor indices deconstruct index constituents by maturity buckets to produce short-term (remaining maturities of one to five years), intermediate-term (five to ten years), and long-term (greater than ten years) sub-indices.

The indices are designed to serve as portfolio benchmarks or as building blocks for portfolio construction.

To enhance their investability and viability as underlying reference indices for index-linked investment products such as ETFs, the indices contain a smaller number of bonds relative to comparable indices and emphasize the most liquid issues, while still reflecting the contours of the overall market.

The indices, which will likely appeal to product development teams at ETF sponsors, complement Morningstar’s existing line-up of equity and alternative indices, and provide a cost-effective alternative to indices from the more established players in the bond indexing ecosystem, namely Bloomberg Barclays, IHS Markit and FTSE Fixed Income.

Morningstar has already ruffled feathers in the indexing space with its Open Indexes Project, which aims to lower the cost of market indices and improve outcomes for all investors. As part of this effort, it has been delivering equity indices for benchmarking purposes for free and is thought to have licenced indices to ETF issuers including Lyxor and JP Morgan Asset Management at highly competitive fixed costs, thus facilitating the launch of very low cost products for end investors. Examples being the Lyxor Core Morningstar UK NT (DR) UCITS ETF and the JPM BetaBuilders US Equity UCITS ETF, both charging just 4 basis points.

The move into bond indexing demonstrates a commitment to disrupt the status quo beyond equities.

“Fixed income plays an essential role in helping investors achieve their financial goals,” said Sanjay Arya, Head of Indexes at Morningstar. “Understanding the underlying market is key to improving investment outcomes, and it is our belief that the democratization of information levels the playing field for everyone across the investment ecosystem. We have constructed a comprehensive global family of bond indexes that represent discrete asset class exposures, without any gaps or overlap.”

Dan Lefkovitz, Strategist for Morningstar Indexes, added, “Bond indexing is challenging, yet indexes are more important than ever – as tools for portfolio construction and as bases for investment products. We want to better reflect the investable market while also offering transparency into critical exposures such as interest-rate sensitivity, credit quality, and sector allocation.”

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