Axiom Alternative Investments and Unicredit have banded together to launch the first ETF to provide exposure to the global CoCos market, or contingent convertible bonds.
The UC AXI Global CoCo Bonds UCITS ETF (CCNV) will be listed on the Deutsche B√∂rse and will track the performance of the Solactive Euro-hedged AXI Liquid Contingent Capital Global Market TR index (SOLAXICC), the first such index to provide an exposure to a €141bn market in Additional Tier 1 (AT1) and Restricted Tier 1 (RT1) capital instruments. Solactive said the number of bonds tracked by its new index stood at 123.
CoCos are widely understood as an alternative to high yield bonds and bank stocks, offering higher yields alongside a better credit profile. AT1 euro-denominated bonds are rated on average BB, while the average rating for HY corporate bonds is BB-.
Laurent Dupeyron, managing director at UniCredit, said the fund was designed for an institutional investor base looking to gain exposure to the CoCo market with the UCITS structure. "With this launch, we are proving once again that we can respond flexibly to market developments and the demands of our clients," he added.
David Benamou, founder and chief investment officer at Axiom AI, said his company saw the current market environment as being "very attractive for a number of reasons".
"With the latest bank stress tests showing capital levels in excess of 3% above the conversion trigger, coupled with the current upgrade momentum for European banks by rating agencies, these developments represent very positive signals for the asset class moving forward," he said.
Timo Pfeiffer, head of research at Solactive, added that CoCos were a "bridge between bonds and equity," and investing in them gave exposure to both financial instruments while keeping a low bond-like risk profile.