Ossiam launches smart beta fixed income ETF

Feb 15th, 2018 | By | Category: Fixed Income

Ossiam has launched the Ossiam Solactive Moody’s Analytics IG EUR Select Credit ETF (MOOC FP) on Euronext Paris.

Bruno Poulin, CEO of Ossiam.

Bruno Poulin, CEO of Ossiam.

This new smart beta fixed income ETF invests in a portfolio of euro-denominated investment grade corporate bonds, seeking to maximise total return while maintaining a low credit risk profile.

The fund tracks the Solactive Moody’s Analytics IG EUR Select Credit Index. Bonds are selected by applying Moody’s Analytics public-firm EDF (Expected Default Frequency) credit measures, which are forward-looking, point-in-time default probabilities. These measures are based on information from equity markets and are combined with a detailed picture of a company’s capital structure.

Moody’s Analytics combines EDF metrics with other inputs to produce a credit spread valuation framework, known as FVS (Fair Value Spreads). EDF and FVS metrics are used to provide investors with an exposure to the high-quality corporate sector through a methodology emphasizing cost-efficiency and liquidity.

The methodology selects a liquid and investable bond portfolio from the components of the parent Solactive Euro IG Corporate Index which is first filtered to retain only the most liquid bonds. It is then further refined by a quality filter based on Moody’s Analytics EDF credit measures to remove the bonds displaying the highest downside risk. The final stage of the process is to compare the remaining bonds’ Option Adjusted Spread to their Moody’s Analytics Fair Value Spread to select the 100 most-undervalued bonds.

The index is equally weighted, re-balanced quarterly and aims to maintain the same sector and duration exposure as its parent index. The index allows a maximum weighting of 5% per issuer in order to enhance diversification.

Bruno Poulin, CEO of Ossiam, said, “The Ossiam investment-grade credit strategy is aimed at long-term investors prioritising stable returns from high quality bonds issued by companies with strong business models in debt capital markets. While it is extremely difficult to make predictions of future credit market behaviour, a systematic investment strategy based on companies’ long-term performance, equity valuation and capital structure goes a long way towards providing investors with a rational basis for selecting high-grade corporate bonds.”

Timo Pfeiffer, head of research at Solactive, said, “The Solactive Moody’s Analytics IG EUR Select Credit Index is a very unique index. Smart beta bond strategies have until now only represented a small share of the global demand for smart beta, which is dominated by equities. However, smart beta is becoming more and more prevalent in the fixed-income space and we are happy to contribute to this trend with this new index.”

David Munves, managing director at Moody’s Analytics, added, “Moody’s Analytics is pleased to work with Ossiam and Solactive by providing key inputs for Ossiam’s innovative ETF. EDF and Fair Value Spread metrics, contained in the Moody’s Analytics CreditEdge platform, are measures of credit risk and relative value, and are used by a large number of banks, insurance companies, fund managers and corporations. The launch of the Ossiam Solactive Moody’s Analytics IG EUR Select Credit ETF represents an important advance in the use of metrics from the CreditEdge platform by corporate bond investors and other market participants.”

The ETF accumulates income generated within the fund and has a total expense ratio (TER) of 0.35%.

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