European bond ETF provider Tabula Investment Management interlisted its highly successful Asia ex-Japan high yield corporate bond ETF on Deutsche Börse Xetra.
The Tabula Haitong Asia ex Japan High Yield Corporate USD Bond ESG UCITS ETF is available on Xetra via a share class hedged in euro under the ticker TAEH GY.
The ETF was first launched on London Stock Exchange in US dollars (TAHY LN) in early September and has already reached over $ 100 million in assets.
The new hedged euro listing comes with an expense ratio of 0.65%, while the original LSE share class costs 0.60%.
Michael John Lytle, CEO of Tabula Investment Management, said: “The welcome from institutional investors during the first two months of trading shows that there is significant demand for this asset class. By offering a EUR hedged listing on Xetra, European ETF investors can now effectively access the Asian USD high yield corporate bond market and make much more granular asset allocation decisions.
The fund is linked to IBoxx MSCI ESG USD Index Asia ex Japan High Yield Capped, an index developed by Tabula in collaboration with a Hong Kong-based investment bank Haiti International and index provider IHS Markit while using ESG data from ESG MSCI research.
Index is based on parent iBoxx Asia ex-Japan USD Corporates High Yield Index which covers a universe of non-investment grade corporate debt, denominated in US dollars, issued by issuers with a notional outstanding amount of more than 400 million dollars and domiciled in Cambodia, China, Hong Kong, India, Indonesia, Macau, Mongolia, the Philippines, Singapore, South Korea, Thailand or Vietnam.
Eligible bonds must have a known cash flow (including fixed rate, zero coupon, callable, callable, escalating, amortizing and perpetual) securities, a residual maturity greater than one year and a size of minimum issue of $ 250 million.
The methodology implements several environmental, social and governance filters that eliminate issuers in violation of the principles of the United Nations Global Compact, those whose operations are related to civilian firearms, controversial weapons, nuclear weapons, tobacco or recreational cannabis, and those that generate significant income from alcohol, adult entertainment, conventional weapons, gambling, GMOs, nuclear power or thermal coal.
Using information from MSCI ESG Research, the remaining issuers are then assigned ESG scores based on the most relevant ESG factors by industry and risk exposure. ESG scores are based on a seven point scale between AAA and CCC.
Components are initially weighted by the current market value which is then adjusted to increase exposure to issuers with higher ESG ratings and positive ESG dynamics and, similarly, reduce exposure to issuers with ratings. Lower ESG and negative ESG dynamics. A positive (negative) ESG momentum is defined as the ESG score of a company that has improved (deteriorated) in the past 12 months.
In concrete terms, the market value weightings of issuers are first adjusted by an ESG rating factor corresponding to the following ESG scores: AAA (x1.75), AA (x1.5), A (x1.25), BBB ( x1), BB (x1 / 1.25), B (x1 / 1.5) and CCC (x1 / 1.75). Second, the weight of issuers with positive ESG momentum is multiplied by 2, while those with negative ESG momentum are reduced by 50%. The above weighting methodology also takes into account the issuer and sector caps of 3% and 50%, respectively.
Lytle added, “While the opportunity for Asian high yield is clear, there are also challenges to be met. With high yield issuers, ESG concerns, especially governance, may be more important and liquidity is also a factor to consider. Local expertise can considerably improve the efficiency of exchanges. By working in partnership with Haitong International, leveraging their considerable experience and field presence in the region, as well as with IHS Markit, we have been able to seize these opportunities. “
At the end of October, the index contained 188 bonds from 82 issuers. Chinese issuers dominated with a combined weighting of 56.6%, followed by Indian (21.4%), Indonesian (8.5%) and Hong Kong (7.2%) companies. The real estate sector was approaching the 50% cap while the next sector exposures were financials (24.5%), energy (12.7%) and industrials (10.6%). Almost three quarters (72.3%) of the index was allocated to bonds rated BB with the majority of the remaining exposure to bonds rated B.
The index posted a return of 13.6% with a duration of 2.7 years.
Frederick Chu, Head of ETF Activities at Haitong International, said: “Asian credit is now a trillion dollar asset class – and China the second largest bond market in the world – but many European investors are significantly underweight. . The new listing on Xetra shows our collective commitment to European investors. The ETF provides direct access to the USD segment of the high yield Asian market, while addressing ESG and liquidity challenges.