SSgA unveils world’s first passive global convertible bond ETF

Oct 16th, 2014 | By | Category: Fixed Income

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State Street Global Advisors, the asset manager behind the SPDR ETFs brand, has announced the launch of the SPDR Thomson Reuters Global Convertible Bond UCITS ETF (ZPRC).

SSgA unveils world’s first passive global convertible bond ETF

Alexis Marinof, head of SPDR ETFs EMEA.

The fund, which has been listed on the Deutsche Börse, is the first passive global convertible bond ETF.

It aims to offer investors cost-efficient and transparent exposure to the unique risk-return profile of this asset class.

The fund is linked to the Thomson Reuters Qualified Global Convertible Index, which currently includes convertible bonds denominated in multiple currencies from issuers around the world.

Convertible bonds share features of both debt and equity. Like a traditional corporate bond, convertible bonds pay a fixed, periodic coupon and mature on a specific date. Where they differ from traditional bonds is that they also contain an option which gives the holder the ability, but not the obligation, to convert their bond into a pre-determined number of shares of the underlying company.

This means that investors are potentially protected by the bond-like features in falling markets, but are also able to participate in rising markets as the value of the option rises along with equities. This potential for both downside protection and upside participation makes convertible bonds a popular addition to portfolios for both large and small investors.

Alexis Marinof, head of SPDR EMEA, commented: “SSGA has been managing passive convertible bonds in a regulated ETF wrapper for more than five years in the US, managing nearly $3 billion in assets and covering the liquid portion of the US market.”

He added: “Convertible bonds have exhibited historically lower correlations to traditional equity and bond markets, and typically will have lower sensitivity to interest rate changes than normal bonds which makes them a great portfolio diversifier. These features, combined with the potential for investors to protect on the downside whilst still being able to participate in the upside, make them more attractive in many instances than standard equities or bonds.”

Peter Sleep, senior portfolio manager, 7IM, said: “We believe the timing is ripe for an allocation to convertible bonds. SSGA has a long track record of managing passive convertible bond portfolios in the US and it’s an asset class that we’ve been seeking passive exposure to for some time, so we are delighted to be the first investor in the fund.”

There are now 59 SPDR ETFs available across Europe. This latest launch follows the introduction of the SPDR Russell 2000 US Small Cap UCITS ETF and the SPDR Russell 3000 US Total Market UCITS ETF on the London Stock Exchange and Deutsche Börse in June.

The new fund has a total expense ratio of 0.50%.

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