Two of ETF Stream’s Product Panel have warned about the longevity of WisdomTree’s coronavirus recovery bond ETF despite the excitement surrounding the launch.
The WisdomTree European Union Bond UCITS ETF (EUBO) is the world’s first ETF to offer exposure to European Union-issued bonds focused on limiting the damage caused by the coronavirus pandemic.
Tracking the iBoxx EUR European Union Select index, EUBO is made up of bonds issued by the EU to finance its SURE programme and NextGenerationEU initiative – which have ceilings of €100bn and €750bn, respectively.
Alexis Marinof, head of Europe at WisdomTree, added: “EUBO reflects our approach to product development and providing investors with unique exposures, whether that is by being first to market or developing differentiated strategies.”
Athanasios Psarofagis (pictured right), ETF analyst, Bloomberg Intelligence
I like this ETF launch. WisdomTree has shown innovation in the fixed income space with the CoCo bond ETF launch and now this. It is a bit of an opportunity play right now and has the advantage of support but I wonder what the longevity of the ETF is when issuance slows or stops.
It could then potentially run into issues in the index construction because when there is no new issuance it can be tough to replace the bonds with new names.
Stephen Penfold (pictured left), senior investment manager, 7IM
The ETF does what it says on the tin and gives exposure to centrally-issued EU bonds. The bonds are to help with the recovery from the COVID-19 pandemic and fall under the Social Bond Framework that assures investors the funds will be used in a socially responsible way.
This is quite a narrow ETF with only five bonds inside and has quite a long modified duration of about 14 years and a yield of 0.01% before fees of 16bps, (my estimates). The ETF is not the cheapest ETF of this nature but also not the most expensive. It is reasonably priced and quite a niche product, so not a huge amount of competition on pricing at the moment.
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It will interest investors looking for alternatives to German government-issued bonds given the slight yield pick-up. It might also interest investors who are looking at ESG given the socially responsible framework. Although I personally think it may be a little too focused given its narrow range of issuance.