Tabula Investment Management has launched a global high-yield fallen angels Paris-Aligned Benchmark (PAB) ETF with $50m seed from a ‘large Nordic institution’.
The Tabula Global High Yield Fallen Angels Paris-aligned Climate UCITS ETF (THFA) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.50%.
THFA tracks the Bloomberg MSCI Global Corporate Fallen Angels Paris-Aligned index, providing exposure to companies downgraded from investment grade while aligning with PAB objectives.
Categorised as Article 9 under the Sustainable Finance Disclosure Regulation (SFDR), the ETF will look to reduce greenhouse gas emissions by at least 50% compared to the broad market.
Companies will also be excluded from the index based on MSCI’s screening process, which includes businesses involved in controversial weapons, tobacco and companies generating revenue from oil and gas or thermal coal.
The strategy also uses time-based weighting, overweighting newly fallen angels in a bid to increase exposure to any rebound, while retaining any exposure over the long-term to benefit from upgrades.
According to the group, fallen angels have much more potential to return to investment grade than high yield over time, with the default rate “significantly lower” than for broad high-yield exposure.
Michael John Lytle (pictured), CEO of Tabula, said: “Many fallen angels enter the high yield universe with a BB rating and do not slip below that level. S&P’s long-term average global default rate is 0.59% for BB, compared to 25.7% for CCC and below.”
Jason Smith, CIO at Tabula said: “Fallen angels tend to be large, well-established names. Their business models and financing strategies are built around investment grade borrowing rates, so their management has a strong incentive to address the issues that triggered the downgrade.”
It is the third Article 9 ETF to be launched by Tabula after it unveiled the Tabula EUR HY Bond Paris-aligned Climate UCITS ETF (THEP) in February last year and the Tabula EUR IG Bond Paris-aligned Climate UCITS ETF (TABC) in January 2021.
The group said its SFDR Article 8 and 9 ETFs now account for 80% of its ETF assets under management (AUM) and comes a year after it said it was turning its focus to ESG.