Boom in fixed-income ETFs
iShares has launched nine new exchange traded funds (ETFs) on the London Stock Exchange, including four fixed-income products.
The provider, which is the latest to join the trend towards the asset class, says fixed-income products remain attractive to investors during the current climate.
However, Axel Lomholt, head of product development for iShares Europe, adds they have remained one of the last mainstream asset classes for ETF providers to tackle, mainly because of the difficulty providers have in developing products that track the broad fixed-income indices.
The ETFs launched are: Barclays Euro Corporate Bond ex-Financials; Barclays Euro Corporate Bond ex-Financials 1-5; Barclays Euro Corporate Bond 1-5; and iBoxx £ Corporate Bond ex-Financials.
"These new funds provide the building blocks for investors to increase their tactical exposure in the euro corporate bracket," says Lomholt.
iShares is not the first to branch to make the move into this relatively underdeveloped product range.
On 17 September, db x-trackers announced six new fixed income ETFs, listed on the London Stock Exchange.
At the time, Manooj Mistry, head of db x-trackers UK, said the new products offered an ideal addition to any portfolio because they not only maintained the flexibility of traditional ETF investments, but also provided a greater level of stability to investors.
ETFs continue to grow in popularity; last month, data revealed that European ETF assets have pushed an all-time high. The figures, compiled by Barclays Global Investors, showed that at the end of August 2009, European ETF assets were up 20.2% on July 2008 totals – an increase from $159.9 billion to $192.1billion.
This result has been driven mainly by trends in emerging market and fixed-income ETFs. At the end of August, fixed-income ETFs had grown by $6.1 billion since the start of the year to reach $46.9 billion.
The other five funds launched by iShares are accumulating funds: MSCI Emerging Markets (Acc); S&P 500 (Acc); MSCI World (Acc); MSCI Europe (Acc); and MSCI Japan (Acc).
There are now 129 iShares funds listed on the London Stock Exchange.
An Exchange traded fund is a security that tracks an index or commodity but is traded in the same way as a share on an exchange. ETFs allow investors the convenience of purchasing a broad basket of securities in a single transaction, essentially offering the convenience of a stock with the diversification offered by a pooled fund, such as a unit trust. Investors buying an ETF are basically investing in the performance of an underlying bundle of securities, usually those representing a particular index or sector. They have no front or back-end fees but, because they trade as shares, each ETF purchase will be charged a brokerage commission.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
Corporate bonds are one of the main ways companies can raise money (the other is by issuing shares) by borrowing from the markets at a fixed rate of interest (the reason why they are also known as “fixed-interest securities”), which is called the “coupon”, paid twice yearly. But the nominal value of the bond – usually £100 – can fluctuate depending on the fortunes of the company and also the economy. However it will repay the original amount on maturity.