Invesco is looking to launch more fixed income exchange-traded funds in Europe after introducing US Treasury Bond ETFs in the region this month.
Nic Basson, head of EMEA ETF marketing at Invesco, told Markets Media: “There has been a lot of interest in our new US Treasury ETF range. Fixed income ETFs are coming of age and larger benchmarks are growing their assets in the same way as equity benchmarks.”
This month Invesco launched four US Treasury Bond ETFs in Europe which it said were the lowest cost for the asset class in the region. The funds trade in US dollar or sterling on the London Stock Exchange and have ongoing charges of 0.06% per annum.
Nic Basson, Invesco
“We are looking for opportunities for other fixed income ETFs such as in floating rate notes,” Basson added. “As investors become more comfortable with ETFs they typically expand from vanilla products to new smart beta and factor offerings.”
Invesco completed its acquisition of Source, the European independent specialist ETF provider, in August 2017. Since the completion of the deal Invesco has launched a suite of European-listed ETFs.
Reflecting the growing investor interest, last year also saw the launch of Tabula Investment Management Limited, the European fixed income ETF provider.
This month Tabula launched the European iTraxx Crossover Credit Ucits ETF offering passive exposure to European sub-investment grade corporate credit with limited interest rate risk compared to traditional bond indices. Tabula said it is the first directly replicating Ucits ETF giving beta exposure to credit default swaps, in this case high-yield credits, through positions in the European iTraxx Crossover index.
MJ Lytle, Tabula Investment Management
Michael John Lytle, chief executive of Tabula, said in a statement: “We strongly believe in democratising access to CDS indices. We are making them available in a transparent Ucits ETF, which extends the tool kit for fixed income investors to efficiently manoeuvre in difficult market environments.”
Tabula said it plans to launch more funds - from investment grade and high yield credit to inflation, credit volatility, money markets and broader market exposure.
Fund flows
Basson said Invesco had seen investors switching into Invesco ETFs from higher priced products. Over the past year investors have been focused on Europe ex-UK and there have also been flows into physical gold ETFs.
“ETF industry flows were down in 2018, year over year, but it was still the second best year on record,” he said. “This speaks to the acceptance of the ETF wrapper in the broader market.”
Detlef Glow, head of EMEA research at Lipper, described 2018 as an outstanding year for ETFs, even though it was a tough year for the European fund industry overall.
https://twitter.com/DetlefGlow/status/1087257101787791360
Glow said in a report that last year there were overall outflows of -€129.2bn from mutual funds registered for sale in Europe but in contrast, ETFs had inflows of €42.2bn.
“With regard to the fund flow numbers above, some market observers witnessed a slowdown in the growth of ETFs in Europe.” added Glow. “But in fact, 2018 was the third best year in history with regard to ETF net sales in Europe.”
He continued that the net sales in ETFs last year look even more impressive since actively managed funds had massive outflows. Glow argued this was because ETFs give investors transparency into their portfolios and also offer intraday liquidity.
"Investors have understood what they can expect from an ETF and how they can use the product features for their advantage,” said Glow. “That said, for me it is quite sure that ETFs have become mainstream amongst European investors and are set for another successful year ahead.”
Basson added that the ability to execute intra-day and have full visibility on their holdings means that investors are using ETFs for asset allocation ahead of the UK leaving the European Union.
“Invesco is taking steps to ensure we offer clients an uninterrupted service after Brexit,” he said. “We have an Irish Ucits platform and we are working to ensure that all our ETFs will be ready for ICSD.”
Basson continued that environmental, social and governance (ESG) funds are also experiencing a new wave of investor interest. “Equity has taken the lead but other asset classes are following,” he said.
