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China Post latest to roll-out CoCo bond ETF

Euro_coinsChina Post Global said it had launched the “world’s first” euro-based exchange-traded fund (ETF) based on an index of convertible bonds issued by European banks.

The product is the third so-called “Co-Co” bond ETF to be launched in as many months following products from WisdomTree and Invesco, which both also reference European banks’ Additional Tier 1 (AT1) capital.

China Post’s ETF is called the Market Access Markit iBoxx Eur Contingent Convertible Liquid Developed Market AT1 Index Ucits ETF and provides exposure to euro-denominated AT1 contingent convertible bonds.

The firm says it is the first ever euro-based ETF tracking a European bank CoCo bond index – the Markit iBoxx Eur Contingent Convertible Liquid Developed Market AT1 Index.

The index selects and weights AT1 CoCo bonds based on their type, credit rating, liquidity, investability and time to maturity.

“This is an exciting new ETF for which we’re seeing considerable demand from institutional investors” said Danny Dolan, managing director of China Post Global (UK).

He added that investors appreciated the liquidity of the index, which is also used in the institutional swap market.

The ETF uses physical replication and has a total expense ratio of 0.48%.

CoCo bonds are a type of bond that may either convert into shares of the issuer or be written down in value partly or fully, following a predefined trigger event, and because of this risk CoCo bonds typically have a higher coupon than regular bonds from the same issuer.

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