Today has seen the launch of a new ETF provider on the European scene as fixed-income specialist Tabula Investment Management marks its debut with the Tabula European Performance Credit UCITS ETF.
The new fund offers passive exposure to European corporate credit and aims to provide a competitive yield without the interest rate risk of traditional corporate bond indices. The company says the ETF could be used to replace long-term bond holdings or for tactical credit exposure.
Tabula was founded in the spring by Michael John (‘MJ’) Lytle, formerly one of the founding partners behind Source.
Lytle said about the new fund that though European corporates “look healthy” and their credit is reasonably priced, not all investors want the interest rate risk inherent in corporate bonds.
“Specialist credit managers can isolate and manage credit risk using credit default swap indices,” he added. “This is a liquid and efficient market, but it isn’t accessible to all asset managers. Our new ETF gives you the same kind of control – precise credit exposure and the ability to increase or decrease it whenever you want to.”
The new ETF is also performance-focused and offers a competitive yield. Currently that stands at around 5% and according to Tabula in simulations it has u-outperformed both high yield and investment grade benchmark.
“When you remove interest rate risk, you’re removing one source of yield,” said Lytle. “Our ETF compensates for this by taking on more exposure to credit spread.”
“To enhance yield, you typically need to reduce credit quality or increase duration. However, if you have a positive view on European credit, it makes sense to scale up that exposure instead,” he said.
This is the first of what the company says will be a range of fixed income ETFs from Tabula. The company also intends to expand its offering across the asset class from investment grade and high yield to inflation, bank capital, money markets, ESG strategies and Solvency II-efficient funds.
“We’re a new ETF provider but we have many years’ experience in fixed income and are focused on creating better passive products,” said Lytle.
The launch of Tabula’s first fund was also welcomed by the London Stock Exchange.
Lida Eslami, head of London ETP business development said the new fixed income ETF added to the diverse range of funds available on the LSE’s markets offering exposure to a broad range of fixed income assets from government bonds to corporate credit.
“London is the premier listing and trading venue for ETFs in Europe and we look forward to developing our relationship with Tabula in the future,” Eslami added.
Lytle was featured in a Big Interview feature on ETF Stream in May where he spoke about the opportunities ahead for Tabula. “From a focus and flow perspective, the money going into passive fixed income – mainly ETFs – has been accelerating over the course of the last few years,” he said at the time.