SSGA adds accumulating share class on EM local local bond ETF on SIX

Oct 10th, 2018 | By | Category: Fixed Income

State Street Global Advisors has added an accumulating share class to its SPDR Bloomberg Barclays Emerging Markets Local Bond UCITS ETF listed on SIX Swiss Exchange.

SSGA cross-lists EM local currency bond ETF’s accumulating share class to SIX

The accumulating share class of the SPDR Bloomberg Barclays Emerging Markets Local Bond UCITS ETF is now available on SIX Swiss Exchange and Deutsche Börse.

The accumulating share class provides investors with the option to re-invest income payments received from the fund.

It is available to trade on SIX in Swiss francs under the ticker EMDA SW.

Investors can expect to see income capitalise and compound quickly given the fund’s underlying index currently exhibits a yield to maturity of 6.0%.

The index is the Bloomberg Barclays Emerging Markets Local Currency Liquid Government Bond Index, a country-constrained index designed to provide a broad measure of the performance of liquid local currency emerging markets debt.

The index limits individual country exposure to a maximum of 10% and redistributes the excess market value index-wide on a pro-rata basis.

To be included in the index, securities must have an amount outstanding of at least $1 billion.

The largest country exposures are Brazil (11.0%), Mexico (9.9%), South Korea (9.8%), Malaysia (9.7%) and Thailand (8.3%.) Chinese bonds are presently absent from the index; however, Bloomberg, the index provider, has announced its intention to add Chinese RMB-denominated government and policy bank securities to relevant indices in a phased, 20-month period starting April 2019.

The index has approximately a third of its weight in each of the ‘A’ rated and ‘Baa’ rated credit brackets. Ten percent is allocated to bonds rated ‘Aa’ and the rest is in bonds below ‘Baa’. The effective duration is 5.6 years.

The fund, which launched in May 2011, has since grown its assets under management to over $3.0bn. It comes with a total expense ratio (TER) of 0.55%.

The market for ETFs offering local currency emerging market bond exposure is relatively undeveloped in Europe.

The largest ETF in the space is the iShares JP Morgan EM Local Govt Bond UCITS ETF with over $6.1bn in assets under management which is available to trade on SIX in Swiss francs under the ticker IEML SW. It tracks the Bloomberg Barclays Emerging Markets Local Currency Core Government Bond Index and has a TER of 0.50%.

The $450 million PIMCO EM Advantage Local Bond Index Source UCITS ETF (EMLB LN) issued by Invesco is another alternative. This fund tracks the proprietary PIMCO Emerging Markets Advantage Local Currency Bond Index which weights countries by GDP with a maximum country weight of 15% – a strategy which PIMCO believes helps avoid the most indebted countries. The ETF has a slightly higher price tag of 0.60% and a US dollar-denominated trading line on SIX (EMLB SW).

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