WisdomTree cross-lists enhanced yield bond ETFs on SIX Swiss Exchange

Jul 30th, 2019 | By | Category: Fixed Income

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WisdomTree has cross-listed two smart beta fixed income ETF on the Six Swiss Exchange.

Lidia Treiber, WisdomTree Director of Research in Europe

Lidia Treiber, WisdomTree Director of Research in Europe.

The funds seek to provide enhanced yields compared to similar core European investment-grade bond and treasury benchmarks while limiting tracking error and risk.

The funds are the WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF and the WisdomTree EUR Government Bond Enhanced Yield UCITS ETF.

Rafi Aviav, WisdomTree Head of Product Development in Europe, said, “The ETFs listed today are an important addition to the European fixed income fund landscape. The strategy employed by both funds offers a unique solution for investors to potentially increase the yield they’re getting from the market while tightly controlling risk.

“By tilting towards yield the strategy aims to deliver on one of the most important attributes for fixed income investors while avoiding excessive tracking error and risk-taking with respect to the benchmark.”

Lidia Treiber, WisdomTree Director of Research in Europe, said, “European investors have been faced with negative yields in the one to five year part of most European government yield curves and, most recently, the uncertainty surrounding global trade tensions has pushed ten-year German bond yields to all-time lows of negative 20 basis points, as of the end of May 2019.

“With yields at historically low levels, investors are looking for solutions that provide greater yields for the core of their fixed income portfolios and WisdomTree’s suite of fixed income Enhanced Yield ETFs have been designed to address this need. Their objective to provide higher income using only investment-grade rated bonds and maintaining defined risk constraints are very relevant.”

Aggregate Bond

The WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF tracks the Bloomberg Barclays Euro Aggregate Enhanced Yield Bond Index. It aims to achieve both a higher yield and a low tracking error with respect to its parent universe, the Bloomberg Barclays Euro Aggregate Bond Index, which reflects the performance of the investment-grade, euro-denominated, fixed-rate bond market, including treasuries, government-rated, corporate and securitized bonds.

The index does this by following a rules-based approach which tilts the weights of the parent index towards higher-yielding segments of the market while controlling risk and tracking error. The methodology contains a three-step process for yield optimization:

Firstly, index constituents are divided into buckets across sector, country, maturity and credit quality.

Secondly, to control risk and concentration while limiting turnover, a number of constraints are added. These include tracking error (less than 0.35% per month compared to the parent index), duration (no more than one year greater than the parent), sector (no more than 20% from the sector weight of the parent), and portfolio turnover (capped at 5% per month).

Lastly, the index uses an optimization process to reallocate weights across the buckets to maximize yield while adhering to the constraints. Rebalancing occurs on a monthly schedule.

The ETF has been listed on SIX with two share classes, one that distributes income to investors (Ticker: WYLD SW) and one that accumulates income (Ticker: EYLD SW). Both share classes trade in euros and come with an expense ratio of 0.18%.

Government Bond

The WisdomTree EUR Government Bond Enhanced Yield UCITS ETF tracks the Bloomberg Barclays Euro Treasury Enhanced Yield Bond Index. The index follows a similar methodology as its aggregate bond counterpart and aims to achieve both a higher yield and a low tracking error with respect to its parent index, the Bloomberg Barclays Euro Treasury Bond Index, a reference for investment grade, euro-denominated, fixed-rate government bonds issued by the eurozone sovereigns.

The main difference is the buckets into which the constituents of the government bond index are assigned. These buckets include country, which cannot deviate by more than 20% from the country weight in the parent index, and maturity.

Similar to the aggregate bond fund, the ETF has also been listed with two share classes. The distributing share class trades under the ticker GOVE SW, while the accumulating share class can be found under WGOV SW. Its expense ratio is 0.16%.

Both ETFs are also available to trade in euros on Deutsche Börse Xetra and Borsa Italiana.

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