China Post Global has launched the Market Access Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index UCITS ETF on LSE, Euronext Amsterdam and SIX Swiss Exchange. “This is an exciting new ETF for which we’re seeing considerable demand from institutional investors” said Danny Dolan, MD of China Post Global (UK).

Invesco has listed a euro-hedged share class of its recently launched AT1 CoCo bond ETF on Deutsche Börse’s Xetra and Frankfurt exchanges.

Investors should not be complacent to Additional Tier 1 (AT1) risks. That’s the message from Scope Ratings, a Berlin-based credit rating agency. The cautionary advice comes just weeks after the world’s first ETFs specifically linked to AT1 capital – ‘CoCo’ bond funds WisdomTree and Invesco – made their debut on LSE and Xetra.

By Sam Pierson, director of securities finance at IHS Markit.

It has been a challenging year for investment grade (IG) credit investors. Since the start of 2018 IG-tracking ETFs have declined in value by 6% on average. The IG ETFs also sport a 4% year-to-date underperformance relative to high-yield tracking funds, which appears to be driven by a greater inverse correlation between IG bonds and rising US treasury yields.

Invesco has launched the Invesco AT1 Capital Bond UCITS ETF (AT1 LN) on London Stock Exchange, providing access to Additional Tier 1 contingent convertible (“CoCo”) bonds issued in USD by European banks. “European banking AT1 assets have become more attractive for investors who are comfortable moving up the risk curve in the search for higher yields,” said Nicolas Samaran, head of EMEA ETF innovative product development at Invesco.

Following a review of its product lineup, BlackRock plans to close and liquidate the following US iShares ETFs. The funds have failed to attract significant assets under management. The smallest fund (HHYX) has just $1.4m in AUM and the largest (HEFV), $16.7m.

WisdomTree has launched the WisdomTree AT1 CoCo Bond UCITS ETF (CCBO LN) on London Stock Exchange, providing exposure to contingent convertible (CoCo) bonds issued by financial institutions from developed European countries. Rafi Aviav, WisdomTree head of product development in Europe, said, “This is a major development for investors globally who can now, for the first time, gain diversified exposure in a UCITS structure to the AT1 CoCo market with the ease and efficiency of trading an ETF.”

Tabula Investment Management is preparing to make its debut with the launch of a range of fixed income ETFs in Europe. The firm’s first ETFs will provide exposure to credit default swap (CDS) indices from IHS Markit. Michael John (‘MJ’) Lytle, CEO of Tabula, commented, “Passive strategies account for only 5% of fixed income fund assets, compared to 30% for equities. We expect this gap to close, but how quickly will depend on how compelling the available funds are.” 

BlackRock has launched the iShares Inflation Hedged Corporate Bond ETF (LQDI US) on Cboe ETF Marketplace. The fund seeks to mitigate unexpected inflation risk – inflation going up beyond market expectations – in a portfolio composed of US dollar-denominated, investment grade corporate bonds. This means that Inflation risk will be reduced, but investors will still be exposed to interest rate risk and credit risk.

ETFs providing exposure to high-yield corporate bonds enjoyed strong returns in April, bouncing back from weak performance in the first quarter of 2018. BlackRock’s iShares $ High Yield Corp Bond UCITS ETF (SHYU LN)—the largest of its kind listed in Europe with over $3.8 billion in assets under management—was among the top high-yield performers for the month, with a return of 2.5%.