Tabula Investment Management has launched a GBP-hedged share class for its highly successful Asia ex-Japan high-yield corporate bond ETF.

Stefan Garcia, Chief Commercial Officer at Tabula Investment Management.

The Tabula Haitong Asia ex-Japan High Yield Corp USD Bond ESG UCITS ETF – GBP-Hedged has been listed on London Stock Exchange under the ticker TAGH LN.

The ETF, which was developed in partnership with Hong Kong-based investment bank Haitong International, recently reached $200 million in assets under management despite launching just six months ago.

Commenting on the milestone, Stefan Garcia, Chief Commercial Officer at Tabula Investment Management, said: “Reception from institutional investors has shown there is significant demand for this asset class. Many investors are choosing the fund due to its significant exposure to Chinese real estate which has benefited from the support of the Chinese authorities over the last few months.”

Frederick Chu, Head of ETF Business at Haitong International, added: “Asian credit is now a trillion-dollar asset class – and China the world’s second-largest bond market – but many European investors are significantly underweight. This new share class shows our collective commitment to European investors. The ETF provides straightforward access to the USD segment of Asia’s high yield market, while also addressing ESG and liquidity challenges.”

The new GBP-hedged share class, as well as a EUR-hedged share class on Xetra (TAEH GY), come with expense ratios of 0.65%, while the fund’s original US dollar share class on LSE costs 0.60%.

The ETF is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Requirement (SFDR).

Methodology

The fund is linked to the iBoxx MSCI ESG USD Asia ex-Japan High Yield Capped Index which was developed by Tabula, Haitong, and index provider IHS Markit while utilizing ESG data from MSCI.

The index is based upon the parent iBoxx Asia ex-Japan USD Corporates High Yield Index which covers a universe of non-investment-grade, US dollar-denominated corporate debt from issuers that have more than $400m notional outstanding and are domiciled in Cambodia, China, Hong Kong, India, Indonesia, Macao, Mongolia, Philippines, Singapore, South Korea, Thailand, or Vietnam.

Eligible bonds must have a known cash flow (including fixed-rate, zero-coupon, callable, putable, step-up, amortizing, and perpetual securities), a remaining maturity greater than one year, and a minimum issue size of $250 million.

The methodology implements several environmental, social, and governance-related screens that remove issuers in violation of UN Global Compact principles, those with any operations linked to civilian firearms, controversial weapons, nuclear weapons, tobacco, or recreational cannabis, and those that derive significant revenue from alcohol, adult entertainment, conventional weapons, gambling, GMO’s, nuclear power, or thermal coal.

Using insights from MSCI ESG Research, the remaining issuers are then assigned ESG scores based on the most relevant ESG factors by industry and risk exposure. The ESG scores are based on a seven-point scale between AAA and CCC.

Constituents are initially weighted by market value outstanding which is then adjusted to increase exposure to issuers with higher ESG ratings and positive ESG momentum and, similarly, reduce exposure to issuers with lower ESG ratings and negative ESG momentum. Positive (negative) ESG momentum is defined as a firm’s ESG score having improved (deteriorated) over the previous 12 months.

Specifically, issuers’ market value weights are first adjusted by an ESG rating factor corresponding to the following ESG scores: AAA (x1.75), AA (x1.5), A (x1.25), BBB (x1), BB (x1/1.25), B (x1/1.5), and CCC (x1/1.75). Secondly, the weight of issuers with positive ESG momentum is increased by a factor of 2, while those with negative ESG momentum are decreased by 50%. The above weighting methodology also accounts for issuer and sector caps of 3% and 50%, respectively.

As of the end of April, Chinese issuers accounted for exactly half the index weight followed by firms from India (22.6%), Indonesia (11.6%), and Hong Kong (8.1%). Issuers from the real estate and financials sectors each accounted for approximately a third of the index weight, while the next-largest sector exposures were energy (16.6%) and industrials (10.9%). Nearly three-quarters (72.2%) of the index was allocated to bonds rated BB with the majority of the remaining exposure in bonds rated B (23.5%).

The index was exhibiting a yield of 15.8% with a duration of 2.8 years.