iShares has launched the first global corporate bond ETF in Europe as investors continue to look to the fixed income sector for yield.
The iShares Global Corporate Bond ETF has been listed on the London Stock Exchange under the ticker “CORP”. The fund’s base currency and currency of trading are both US dollars, although the ETF invests in bonds denominated in 15 currencies.
The launch comes in response to continuing investor demand for ETFs that can generate income. Net new cash flows into bond ETFs are on course to more than double from last year’s levels: European fixed income ETFs have received US$50.8bn of inflows in the first eight months of this year, easily exceeding the whole year total of U$28.5bn in 2011, according to a recent ETP Landscape publication from BlackRock, iShares’ parent company. BlackRock recently forecast that assets invested globally in fixed income ETFs could reach US$2 trillion by 2022, compared with a recent total of US$309 billion.
Alex Claringbull, senior fixed income portfolio manager at iShares, told IndexUniverse.eu: “We are seeing increased demand for exposure to fixed income products and ETFs are one of the main ways investors can access the sector. We are answering this by building out our fixed income product offering.”
The physically backed ETF tracks the Barclays Global Aggregate Corporate Bond Index, a broad-based measure of global investment-grade fixed-rate corporate debt markets. The index includes more than 7,000 corporate bonds. At launch, the iShares fund is expected to hold only a subset of this total, around 270 bonds.
Claringbull added: “This product also has the benefit of diversifying the currency risk because of the number of countries it focuses on. With our previous single country corporate bond ETFs there is always the risk of single currency risk exposure.”
Nearly half the index (48 percent) comes from bonds issued by US corporations, with European corporate bonds at 23 percent and Asia Pacific corporate bonds at 10 percent. The index’s modified duration at the fund’s launch was 6 years, while the fund offers a yield to maturity of 2.9% before fees.
One market participant, who declined to be identified, also commented that an ETF based on Barclays’ global aggregate corporate bond index had been requested by investors for some time. CORP is iShares’ twelfth Europe-listed corporate bond ETF.
The fund is physically backed, holding the underlying bonds and securities, and may lend out its holdings to offset fund expenses. The ETF has a total expense ratio of 20 basis points (0.2 percent) a year and distributes income semi-annually.