Industry Updates

Tabula switches index on European corporate bond ETF

The Tabula European Performance Credit UCITS ETF (TCEP) will now track the iTraxx European IG Performance Credit Long index

Tom Eckett

Bonds stopwatch

Tabula Investment Management has changed the index on its European corporate bond ETF in a move to increase credit exposure and minimise direct interest rate risk.

The Tabula European Performance Credit UCITS ETF (TCEP) has been renamed to the Tabula European IG Performance Credit UCITS ETF following a shift in the index strategy.

Effective 21 April, TCEP will now track the iTraxx European IG Performance Credit Long index which offers exposure to 4x leveraged investment grade credit exposure while targeting minimal interest rate risk.

TCEP then sells protection on a credit default swap index which provides exposure to iTraxx Main 5Y index, a basket of 125 investment grade, equally-weighted securities.

In doing so, the ETF emphasises the credit risk and has reduced interest rate risk relative to an equivalent corporate bond ETF. The ETF tracks the “on-the-run” CDS series, rolling into the latest series every six months in March and September.

Finally, the index, which was designed by Tabula and IHS Markit, takes total market exposure of 400% which is rebalanced monthly.

This leaves a basket of bonds that are currently 1.6% AAA, 5.6% AA, 32%, A and 60.8% BBB, as at 31 March.

“Traditional corporate bond ETFs provide investors with convenient market exposure,” Tabula said. “They typically, however, do not give investors any control over the two very different components of corporate bond returns – namely credit spreads and interest rates.

“Outside the specialist derivatives market, there are few tools that allow investors to manage these risks separately.”

TCEP was the fixed income ETF specialist’s first launch in September 2018 and currently has $14m assets under management (AUM).

The total expense ratio (TER) will remain at 0.50%.

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