Five top bond ETFs

€26bn net new assets in fixed income ETFs in 2020

George Geddes

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There has been significant innovation and development in the fixed income ETF space over the past 18 months, driven by increasing demand for more precise exposure to the bond market.

According to data from Lyxor, investors have piled €26bn into fixed income ETFs listed in Europe so far this year, as at the end of Q3, €5.4bn more than their equity counterparts.

Recognising the demand, ETF issuers have started to expand their fixed income ranges with a total of 27 ETFs being listed so far this year, as of 7 December.

These launches are enabling investors to construct diverse and complete portfolios using a mixture of core and complex equity and fixed income ETF.

Here are five fixed income ETFs for investors to consider in their portfolios.

iShares Core € Corp Bond UCITS ETF (IEBC)

The largest fixed income ETF in Europe is the iShares Core Euro Corporate Bond UCITS ETF (IEBC) with nearly €10bn assets under management (AUM).

IEBC is comprised of investment grade corporate bonds based in euros and comes with a total expense ratio (TER) of 0.2%.

It covers debt distributed across the industrials, utilities and financials sectors.

Despite being a euro-denominated corporate debt ETF, it does have a significantly large US exposure, accounting for 19.8% of the fund, the second largest behind France with 21.4%.

Furthermore, it is significantly weighted towards BBB-rated bonds at 55.7%. AAA-rated is the lowest exposure with only 0.4% but this is to be expected given the nature of corporate bonds.

What is driving the increasing demand for fixed income ETFs?

In tandem with this risk are some attractive performances. Year-to-date, IEBC has returned 2.4%, heavily driven by its six-month performance of 5.1%. Furthermore, its five-year return is 13.7%.

Top geographies

Top credit ratings

Top maturities

France (21.4%)

BBB (55.7%)

3-5 years (25.9%)

US (19.8%)

A (34.6%)

5-7 years (22.6%)

Germany (14.6%)

AA (9.4%)

7-10 years (16.9%)

UK (8.3%)

AAA (0.4%)

2-3 years (14.1%)

Spain (6.2%)

Cash (0.01%)

1-2 years (10.5%)

Tabula European iTraxx IG Bond UCITS ETF (TTRX)

An alternative corporate bond ETF comes from fixed income ETF specialist Tabula Investment Management. The Tabula European iTraxx IG Bond UCITS ETF (TTRX) is the firm's largest ETF with €132.4m and has a TER of 0.29%. 

It is comprised solely of European investment grade bonds from 125 entities, however, limits the number of bonds from each entity to just three. The underlying bonds are also EUR-denominated but do not include and US bonds like IEBC.

The bonds must have a minimum outstanding of €500m and 3-7 years to maturity which is extended to 1-10 years if an entity has no bonds in the 3-7 year range.

The UK is its largest exposure with 25.6% followed by France and Germany with 20.8% and 16%, respectively.

It is also lead by debt distributed in the consumer and financials sector with the pair accounting for 26.4% and 25.6% exposure. Industrials accounts for 17.6%.

TTRX also has a higher weighting to AAA-rated bonds at 1.6%. BBB-rated bonds also lead the weighting at 57.6%.

It only launched in January 2020 and therefore does not have a long track performance history but since its inception, it has climbed 2%.

Top geographies

Top credit ratings

UK (25.6%)

BBB (57.6%)

France (20.8%)

A (32.8%)

Germany (16%)

AA (6.4%)

Netherlands (9.6%)

AAA (1.6%)

Switzerland (7.2%)

Not rated (1.6%)

Xtrackers Eurozone Government Bond UCITS ETF (XGLE)

For those wanting reduced risk exposure in the form of government bonds, there is the £3.7bn Xtrackers Eurozone Government Bond UCITS ETF (XGLE).

XGLE is comprised of euro-denominated bonds issued by governments of the eurozone and comes with a TER of 0.15%.

Again, similar to IEBC, France is the largest exposure with 24.7% ahead of Italy with 22.3% and Germany with 17.9%.

As a result of tracking government bonds, the credit rating breakdown is in the favour of AAA-rated bonds with 29.7% weighting. This is ahead of AA1 with 21.5% and AA2 with 7.1%. The remaining 41.7% comes from unrated bonds.

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Being government entities, they are more reluctant to pay for the debt to be rated as it becomes an added expense and the government bond market is widely covered.

XGLE has a YTD performance of 4.3% and a five-year performance of 15.9%.

Top geographies

Top credit ratings

Top maturities

France (24.7%)

AAA (29.7%)

1-3 years (18.2%)

Italy (22.3%)

AA1 (21.5%)

7-10 years (17.6%)

Germany (17.9%)

AA2 (7.1%)

3-5 years (16.1%)

Spain (14.2%)

Unrated (41.7%)

15-25 years (14.1%)

Belgium (5.9%)

5-7 years (13.9%)

SPDR Bloomberg Barclays Emerging Markets Local Bond UCITS ETF (EMDL)

The emerging bond market has been of growing interest to investors as of late, particularly debt denominated in local currencies.

The SPDR Bloomberg Barclays Emerging Markets Local Bond UCITS ETF (EMDL) has $3.9bn AUM and a TER of 0.55%.

It is comprised of local currency emerging market debt and limits each country exposure to at most 10%. To be included in EMDL, securities must have an amount outstanding of at least $1bn.

South Korea is the largest country exposure with 10.1% ahead of China and Indonesia with 9.9% and 9.5%, respectively.

Additionally, nearly 45% of EMDL’s underlying bonds are A-rated or higher while BAA accounts for the majority with 40.5%.

EMDL has had one of the tougher years in terms of performances having fallen 4.1% YTD. Nonetheless, over the long term, it has yielded some attractive returns of 18% over the past five years.

Top geographies

Top credit ratings

Top maturities

South Korea (10.1%)

BAA (40.5%)

3-5 years (17.3%)

China (9.9%)

A (30.1%)

5-7 years (15.5%)

Indonesia (9.5%)

BAA or below (14.7%)

7-10 years (15.2%)

Mexico (8.3%)

AA (13%)

10-15 years (11.1%)

Malaysia (8.2%)

AAA (1.3%)

2-3 years (11%)

iShares China CNY Bond UCITS ETF (CNYB)

The Chinese bond market is becoming increasingly more accessible for foreign investors, particularly since index providers are including the bonds within their flagship world bond indices.

The index inclusions could result in $100bn assets flowing into the Chinese market, and the iShares China CNY Bond UCITS ETF (CNYB) enables investors to do just that as well.

It is comprised of CNY-denominated investment grade bonds issued by the Chinese treasury and policy banks.

Having launched in July 2019, demand for CNYB has been huge with its current AUM totalling $3.7bn. Its fee is significantly cheaper than EMDL at 0.35%, so is well placed for those wanting to increase their Chinese bond exposure than the average 10% weighting it holds in emerging market bond ETFs.

While CNYB is comprised of investment grade bonds and A-rated bonds account for 71.1% of the ETF, 28.8% is in non-rated bonds.

The maturities of the underlying bonds are also predominantly in short to mid-term bonds with 7-10 years being the largest exposure with 24.9% ahead of 3-5 years at 24.1% and 1-2 years at 17.8%.

CNYB has climbed 7.9% YTD, with 8.8% performance since its inception.

Top credit ratings

Top maturities

A (71.1%)

7-10 years (24.9%)

Not rated (28.8%)

3-5 years (24.1%)

Cash (0.06%)

1-2 years (17.8%)

2-3 years (14.5%)

20+ years (9.5%)

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