UBS launches EM local currency bond ETF with multi-factor FX overlay

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

UBS Global Asset Management has launched the UBS JP Morgan EM Multi-Factor Enhanced Local Currency Bond UCITS ETF. The fund provides exposure to local currency government bonds from emerging market issuers while seeking to enhance returns through a multi-factor foreign exchange overlay.

UBS launches EM local currency bond ETF with FX multi-factor twist

The UBS JP Morgan EM Multi-Factor Enhanced Local Currency Bond UCITS ETF is available to trade on SIX Swiss Exchange and Xetra.

The ETF tracks the JP Morgan EM Multi-Factor Enhanced Local Currency Bond Index.

Four-fifths (80%) of the total index exposure is assigned to EM local currency sovereign bonds with a minimum of three years remaining to maturity. Country weights are capped at 10%.

The remaining 20% is assigned to EM foreign exchange forward contracts corresponding to the country weights of the JP Morgan EM Local Market Index, tilted by the currencies’ recent exposure to carry and momentum factors.

Specifically, the investment process seeks to over-weight the top third of higher yielding currencies and under-weight the bottom third of lower yielding currencies; and similarly over-weight the top third of best performing currencies and under-weight the bottom third of worst performers.

The index seeks to generate additional incremental returns by assigning three-quarters of the residual cash from the foreign exchange forward contracts in short-term (one to five-year maturities) US dollar-denominated EM sovereign bonds and the remaining quarter in US Libor.

The index, which maintains an investment grade credit rating with an average index rating of BBB, currently contains 385 bonds from 45 sovereign and 52 quasi-sovereign issuers across 53 countries. It is yielding approximately 5.7% with an average duration of 5.2 years.

There are 19 EM FX exposures in the local currency segment of the index.

The ETF has been listed on Xetra in euros under the ticker UEFE GY and on SIX Swiss Exchange in US dollars (EMLOC SE).

The fund comes with a total expense ratio (TER) of 0.47%. Income generated within the fund is distributed to investors semi-annually.

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