Product Panel: Invesco’s euro government bond ETFs

Invesco’s launch of five euro government bond ETFs comes at an interesting time given the macroeconomic backdrop and the shadow of negative interest rates that currently obscures the view in Europe. The five-strong range are listed on the Xetra and Borsa Italiana exchanges with ongoing charges of 0.10%.

  • Invesco Euro Government Bond 1-3 Year UCITS ETF (EIB3)
  • Invesco Euro Government Bond 3-5 Year UCITS ETF (EIB5)
  • Invesco Euro Government Bond 5-7 Year UCITS ETF (EIB7)
  • Invesco Euro Government Bond 7-10 Year UCITS ETF (EIBX)
  • Invesco Euro Government Bond UCITS ETF (EIBB)

The four ETFs with targeted maturities track the Bloomberg Barclays Euro Government Select indices, offering exposure to the five most liquid economies in Europe: France, Germany, Italy, Spain and the Netherlands. EIBB, which contains bonds of all maturities, tracks the Bloomberg Barclays Euro Treasury Majors Bond index.

What the company says

Paul Syms, head of EMEA ETF fixed income product management at Invesco, commented: “Many investors have European government bonds for core allocation to diversify and reduce their portfolio volatility.

“We have developed these new ETFs with the aim of delivering the right balance between performance and broad market exposure. In addition, given the persistent low yields in Europe, we believe the low costs of these ETFs will attract investors who are increasingly price-sensitive.”

What the panel says

Rumi Mahmood, Nutmeg

The Invesco Euro Government Bond range is very competitive in terms of pricing; at 10 bps it is positioned at the lower end of the fee scale, and half the cost of the incumbent iShares range listed in London.

However, as often seen in new government bond products, investors will play close attention to execution costs which can be inversely correlated with assets size.

Furthermore, whether European government bond ETFs will attract significant flows in an environment where negative yields are increasingly prevalent remains to be seen, though we would note that two of the largest broad Euro government bond ETFs listed in Europe have seen significant inflows year to date.

Jose Garcia-Zarate, Morningstar Europe

The launch of these ETFs is just another step in Invesco’s drive to build up its fixed income offering. Compared to other ETF providers, fixed income is an area where Invesco had plenty of gaps to fill. Any provider that strives to have a wide reach with investors – and I presume this is what Invesco is aiming for – must have a good product range covering mainstream equity and fixed income markets.

There is nothing particularly special about these ETFs in regards to the market exposures they offer. Other providers have had similar products in the market for many years now. The all-maturity ETF (EIBB) will appeal to investors seeking a core long-term holding in EUR government bonds, while the maturity segmented ETFs are more apt for tactical uses, for example to modulate the duration of portion of the portfolio.

So, as I mentioned earlier, this is just a case of Invesco making efforts to become a credible competitor relative to other ETF providers in the fixed-income space. The one thing in their favour is that have been competitively priced at 0.10%. Earlier in the year, Invesco had launched a similar range for US Treasuries and UK Gilts, also priced very competitively. Clearly, if you come late to the party and what you bring is pretty similar to what your competitors already offer, then the obvious option is to undercut them in price.

Peter Sleep, 7IM

This is a product aimed at continental European investors rather than the English speaking world. High-grade Euro government bonds are a core holding for many large investors like pension funds, insurance companies and conservative investors across the Eurozone.

The Invesco ETFs are keenly priced at 10bps, cheaper than similar, but longer established ETFs in the market, but perhaps 10bps is not the last word in low-cost ETFs.

Amundi already has their Prime Euro Govvies ETF priced at 5bps, and there are similarly priced, or even cheaper products covering the US and UK markets from iShares and Lyxor. Given the competitive nature of the ETF market, I would imagine that the door is open for the incumbents in this space to respond and drive down overall prices further.

Ben Seager-Scott, Tilney

It is clear that Invesco is serious about broadening out its fixed-income ETF range, and these latest launches add to the toolbox of ETFs available to investors.

Eurozone government bonds are a core asset class and even though the returns on offer look actively unappealing to many on a long-only hold-to-maturity basis, the market is nonetheless highly active, be that for liability-driven investors, tactical investors or forced buyers with mandate restrictions. With that in mind, it is useful that Invesco have launched both a broad-maturity option and ETFs offering much more specific maturity targeting.

Being able to control duration is becoming increasingly important for investors not only to control interest sensitivity arising from parallel shifts in the yield curve, but also to express views relating to changes in the shape of the curve, such as steepening and flattening.

These ETFs are priced very competitively at 10 basis points, and this will likely put pressure on competitors. Furthermore, the range does not currently engage in securities lending, unlike some of the competition, which is another strongly positive factor in my book

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