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Analyse: Amundi ETF Euro Corporates

Sicherheit kommt auch bei Unternehmensobligationen auf Kosten der Rendite. Die Investment-Grade-Anleihen in diesem ETF kamen zuletzt auf eine Rendite von zwei Prozent. 

Jose Garcia-Zarate 03.01.2014

Rolle im Portfolio

The Amundi ETF Euro Corporates provides exposure to the EUR-denominated corporate bond market. Investors are attracted to investment-grade corporate bonds for the expected steady income at higher yields vis-à-vis government bonds of similar rating and an assumed lower risk profile vis-à-vis equity. The combination of yield pick-up and relative security makes this ETF a candidate to work as a building bloc of the fixed income share of an investment portfolio. Depending on the underlying market fundamentals, this ETF can also play a role as a satellite component within a portfolio in order to roll out tactical overweight bets, which might afford investors the means to enhance expected returns.    

The vast majority of corporate debt issuers are located in developed economies. The index this ETF tracks (e.g. Markit iBoxx EUR Liquid Corporate) shows a rough 50/50 split between financial and non-financial holdings. The index restricts its bond universe to the most liquid issues, which tend to be from large-cap corporations with ratings not veering significantly from those of government bonds. This is likely to curb yield pick-up potential vis-à-vis ETFs tracking corporate bond market indices encompassing a wider universe and thus with a higher risk profile. As such, the yield-enhancing potential of this ETF would perhaps be best suited within a risk-averse core fixed income portfolio made up of top rated government bond ETFs, which would tend to offer the lowest yields within the broad government bond market.     

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Fundamentale Analyse

Investor interest in the corporate bond market has grown substantially since the onset of the financial crisis. The search for safety away from troubled government bond markets has pushed corporate bond yields – particularly those of non-financial corporations – down by a sizeable measure (e.g. EUR-denominated investment grade corporate bond yields from the most liquid issuers stood at or below 2.0% on average in December 2013 vs. 5.50% in January 2009). However, despite this decline in yields, credit spreads (i.e. the yield difference to notional lower risk assets such as AAA-rated government bonds) have remained positive throughout. Bonds issued by financial corporations usually have the highest credit spreads, followed by industrial and utility.

This increase in investor interest in corporate bonds has taken place against a backdrop of increased issuance. The impairment of traditional banking lending channels since the onset of the global financial crisis has forced corporations to increase the share of open-market funding to meet their investment and debt refinancing goals. However, the increase in corporate bond demand has outstripped that in supply, hence the downward trend in yields.

Despite monetary authorities’ efforts to boost money supply and the taxpayer-funded cleaning up of banks’ balance sheets, the banking sector in the world’s developed economies continues to retain a fairly high level of aversion to fully re-opening the lending tap. The easing of financial market tensions in the Eurozone since H2-12 when the European Central Bank made an unequivocal commitment to defend the integrity of the Euro was an important step towards normalisation, but the general backdrop remains fraught with uncertainty. As such, above-average corporate bond issuance growth rates are likely for the foreseeable future. However, in the long run – assuming bank lending normalises – one should expect some mean-reversion in corporate bond issuance metrics to kick in. This would mean an increase in yields.

As this ETF tracks an index with around 50% exposure to financial corporation bonds, of which a significant share issued by Eurozone-based financial institutions, special mention needs to be made of the efforts undertaken by the European Central Bank (ECB) to keep the inter-banking market rolling. Apart from conventional monetary policy measures (e.g. historically low interest rates, now with an explicit commitment to keep them so, or even lower, for an extended period), the ECB has routinely provided ample liquidity to the Eurozone banking sector at very favourable conditions via so-called “non-conventional measures” against an expanded list of accepted collateral. However, at this stage the common perception is that only a minority of this ECB funding has trickled down to real economic agents. 

An eventual withdrawal of the ECB special liquidity provision measures could contribute to boost financial corporate bond yields in the future. However, this would require full normalisation of conditions in the inter-banking market and the effective resumption of bank lending to economic agents. It seems fair to say that this still remains a distant prospect as we write, particularly so for the Eurozone peripheral economies.

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Indexkonstruktion

The Markit iBoxx EUR Liquid Corporate Bond Index measures the performance of the most liquid EUR-denominated corporate bonds with investment grade rating, irrespective of issuing country. Liquid indices are subsets of iBoxx benchmark indices and are designed for derivatives and ETFs. Eligible bonds for this index must have a minimum remaining maturity of 1.5 years and minimum outstanding of EUR 750mn. The maximum number of bonds is 40, with no more than one bond from the same issuer. The index’s statistical weight split is a broad 50/50 between financials and non-financials. The maturity distribution of the index’s basket of constituents is strongly biased towards the short and medium-term. The Netherlands and the UK tend to be the top two countries represented, with issues from corporations located in these nations generally comprising around 50% of the index value. This reflects trends in European corporate bond issuance, with these two countries having a large pension fund customer base for this product. Index calculation is based on bid/ask quotes provided by contributing banks. Analytical values are calculated daily on closing prices. The index is weighted by market capitalisation. Coupon cash is invested at the end of each month in the money market at one-month LIBID (EURIBOR less 12.5 basis points). The index is rebalanced quarterly on the last calendar day of February, May, August and November.

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Fondskonstruktion

Amundi uses synthetic replication to track the performance of the Markit iBoxx Liquid Corporate Bond Index. This ETF was launched in June 2009 and is domiciled in France. This ETF does not distribute dividends. Amundi uses the unfunded swap model for its range of ETFs. The ETF uses investors’ cash to buy a basket of securities (ie. substitute basket) and simultaneously enters into an OTC total return swap agreement with a counterparty in order to receive the performance of the benchmark index of reference (net of fees) in exchange for that of the substitute basket. According to our research, the swap counterparty for Amundi’s range of fixed income ETFs is Societe Generale. The substitute baskets for Amundi’s range of fixed income ETFs tends to be made up mainly of investment grade government bonds issued by OECD countries. To a lesser extent, Amundi can also invest in investment grade corporate and covered bonds from the same group of issuing countries. In any case, correlation between the securities included in the substitute basket and those of the underlying index is not a factor taken into consideration. The substitute basket is held in a segregated account with third party custodian CACEIS Bank and monitored daily by Amundi’s asset managers. The composition of the substitute basket is disclosed on Amundi’s website. According to UCITS III regulations, individual counterparty risk exposure is limited to 10% of the fund’s NAV at any point in time. According to our research Amundi has a target of zero counterparty exposure. This means that swaps are reset whenever their marked-to-market value becomes positive. We understand that Amundi’s policy is not to engage in securities lending.

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Gebühren

The total annual expense ratio (TER) is 0.16%. This is below the average TER of 0.20% for ETFs offering exposure to the EUR-denominated corporate bond market. Additional costs potentially borne by investors and not included in the TER include bid/offer spreads and brokerage fees when buy/sell orders are placed for ETF shares.

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Alternativen

Measured in terms of assets under management (AUM), Amundi takes third place after iShares and Lyxor in the ranking of providers offering ETFs to the broad EUR-denominated investment grade corporate bond market. The two leading ETFs in this segment are the physically replicated iShares Euro Corporate Bond Large Cap ETF (TER 0.20%; tracks a Markit iBoxx index) and the iShares Euro Corporate Bond ETF (TER 0.20%; tracks a BarCap index) with AUM of around EUR 2.8bn each as of this writing. The key difference between these two iShares funds resides in the index they track; with the BarCap benchmark encompassing a larger number of components by applying a more flexible eligibility criteria. 

The Lyxor ETF Euro Corporate Bond ETF (TER 0.20%) remains the most popular synthetic offering, with AUM just over EUR 0.55bn. The Lyxor ETF tracks the same underlying index than the Amundi fund.

Lagging in terms of AUM we find the db x-trackers iBoxx EUR Liquid Corporate 100 (TER 0.20%, swap-based), the Deka iBoxx EUR Liquid Corporate Diversified (TER 0.20%, physical), the Think Capital iBoxx Corporate Bond ETF (TER 0.15%; physical), the SPDR BarCap Euro Corporate Bond (TER 0.20%; physical) and the UBS Markit iBoxx EUR Liquid Corporate Bond (TER 0.20%; physical).

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Über den Autor

Jose Garcia-Zarate  is an ETF analyst with Morningstar UK.