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Lombard Odier Investment Managers and ETF Securities launch fundamental fixed income ETFs


Lombard Odier Investment Managers and ETF Securities have partnered to offer a range of transparent, cost-effective and UCITS-compliant fundamentally-weighted fixed income ETFs. 

Until now, Lombard Odier IM’s fundamental fixed income strategies were only available to mutual fund investors. Lombard Odier IM and ETF Securities have now joined forces to offer smart beta bond opportunities to a wider base of investors through wealth managers, financial advisers and investment platforms.

The initial product listing on the London Stock Exchange, planned for mid-April, will see the launch of ETFs providing fundamentally-weighted exposure to global government bonds, global corporate bonds and European corporate bonds. An emerging market local bond ETF is scheduled to be launched in early May.

The majority of fixed income investors are in strategies that follow a traditional market capitalisation approach. When investing in equities this approach simply means that investors buy the biggest companies. However, in bond markets, this means lending more to the issuers with the most debt. At the heart of this fundamentally-weighted approach, developed by Lombard Odier IM, is the principle that bond investors are lenders. Therefore bond investing should start with a borrower’s capacity to repay their debts rather than their capacity to borrow more. This approach assesses fundamental factors for government and corporate issuers. For governments, the factors include gross domestic product (“GDP”), debt-to-GDP along with fiscal and political stability.  For corporate issuers, each sector’s contribution to the economy is looked at before assessing each individual issuer’s revenues, level of indebtedness, cash flow and asset quality.  We believe this produces a more favourable balance between risk and return for investors.

The new suite of ETFs can be used by both retail and institutional investors as simple, effective and low-cost portfolio building blocks, providing a core allocation to fixed income. The typical characteristics of index-based ETFs, namely their intraday liquidity combined with the transparency afforded by the stringent regulatory standards required for indices, meet the growing investor appetite for smart, low-cost, diversified fixed income investment solutions. These new ETFs aim to capture the increasing shift towards more cost-effective investment solutions but, at the same time, are designed to provide an improved risk-adjusted return profile.

Lombard Odier IM have over five-years of experience in fundamentally-weighted fixed income investing and were one of the first to develop this approach and now publish the indices. ETF Securities provide the complementary expertise and credentials in the field of ETF product strategy and infrastructure. They are pioneers in specialist investment solutions and developed the world’s first gold exchange traded commodity in 2003.

Mark Weeks, Chief Executive Officer, ETF Securities, says: “This dynamic partnership is built on the complementary skills and expertise of two industry leaders and we are pleased to be joining forces with them. By delivering Lombard Odier IM’s fundamental fixed income strategy via ETFs, we are offering an innovative smart beta solution to bond investing, further building on our reputation as a pioneer in specialist investment solutions. Extending our investor proposition has been at the centre of our strategy: adding fixed income solutions to our already strong franchise across commodities, currency, specialist equity and short & leveraged ETPs is another milestone in delivering intelligent alternatives for investors.”

Hubert Keller, Chief Executive Officer, Lombard Odier Investment Managers, adds: “We’re pleased to be working with ETF Securities, a forerunner in ETP expertise. In fixed income markets, a traditional passive approach lends money to the most indebted. If someone already owes you a lot of money, is it a good idea to lend them more? We strive to offer bond investors greater diversification by lending based on issuers’ ability to repay rather than their ability to borrow. We use fundamental factors, based on the real economy, to determine the most appropriate allocation.”

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