FinEx, an international investment management group, has entered the European exchange-traded fund (ETF) market with the launch of the FinEx Tradable Russian Corporate Bonds UCITS ETF (FXRU), the world’s first ETF to provide dedicated exposure to Russian corporate debt.
FinEx has entered the European ETF market with the launch of the world’s first ETF to provide dedicated exposure to names such as Gazprom, Sberbank, VTB, TNK-BP and Ervaz. (Picture: Sakhalin-2 oil and gas project. Source: Gazprom)
The fund has been listed on the Irish Stock Exchange and is cross-listed on the London Stock Exchange. Additional cross-listings on other major European exchanges are planned.
The fund’s underlying index is the Barclays EM Tradable Russian Corporate Bond (EMRUS) Index, which focuses on shorter maturity liquid Eurobonds issued by Russian non-sovereign issuers.
Securities issued by domestic Russian quasi-sovereign and corporates are eligible for the index, with a maximum of three bonds per issuer. Issuer caps and floors are applied to enhance diversification. Duration of the bonds ranges from 18 months to five years. The index currently has a duration of 2.88 and an average maturity of 3.25 years, and a current yield of 5.98% with a yield to maturity of 3.17%.
Major issuers within the index include names such as Gazprom (GAZPRU), Sberbank (SBERRU), VTB (VTB), Gazprombank (GPBRU), TNK-BP (TMENRU), VimpelCom (VIP), Russian Agricultural Bank (RSHB), Russian Railways (RURAIL), Lukoil (LUKOIL), Evraz (EVRAZ), Alpha-Bank (ALFARU) and Severstal (CHMFRU).
Barclays EM Tradable Russian Corporate Bond Index: Issuers by index weights (Source: Barclays Research)
The index was launched in December 2012 but back-testing of its constituent securities on an unhedged US dollar basis shows that it delivered a total net return of 8.17% over one year to 15 February 2013. It also returned a net 46.29% from a calculation inception date of 1 June 2009 to 15 February 2013.
The new fund is the debut ETF from industry newcomer FinEx.
FinEx was founded by Simon Luhr, an industry veteran with 30 years’ experience in investment management and banking. Mr Luhr established and managed the equities finance, delta one and prime brokerage businesses at both Morgan Stanley and Nomura, and later co-founded Marble Bar Asset Management and SW1 Capital.
Mr Luhr and his team at FinEx expect continued strong growth in the global ETF market for the next few years, but believe that increasingly a growing proportion of this will be fuelled by investors in emerging markets. “Although the global ETF market has enjoyed phenomenal growth in recent years it has yet to take off in many emerging markets. They are a new frontier to which we can take our very strong proposition,” said Mr Luhr.
Barclays EM Tradable Russian Corporate Bond Index: Credit quality of issuer by index weights (Source: Barclays Research)
In line with this view, FinEx aims to become a market-leading provider of ETFs in emerging markets, where in many cases the products are not currently listed. An example of this is the firm’s plan to cross-list FXRU on the Moscow Exchange (MICEX-RTS) shortly, which it expects to be the first ETF to list in Russia.
Mr Luhr added: “This is a very exciting time to launch a new ETF proposition. We believe that ESMA has addressed many of the criticisms aimed at ETFs, for example in terms of transparency, and our UCITS offering will aim to comply with all of the recent recommendations made by it.”
Deborah Fuhr, partner at independent research and consultancy firm ETFGI, commented: “This is far from another ‘me too’ entry into what some commentators might say is a highly competitive ETF market. FinEx has a fresh take on the ETF market with its strategy to act as a bridge, bringing Western style products to Emerging Markets while offering Western investors access to emerging economies. It is an area of the market that offers great potential.”
The fund is synthetically backed and comes with a total expense ratio (TER) of 0.50%. It is UCITS IV compliant and registered in Ireland, Russia and the United Kingdom, though as yet does not have UK distributing or reporting status.