WisdomTree has launched an ETF that allows investors to access the evolving asset class of European Union (EU) bonds.
The WisdomTree European Union Bond UCITS ETF (EUBO), listed today on Borsa Italiana and Börse Xetra, seeks to track the price and yield performance, before fees and expenses, of the iBoxx EUR European Union Select Index, and has an expense ratio of 0.16 per cent.
EUBO seeks to track performance of the iBoxx EUR European Union Select Index, a basket of EUR denominated investment grade bonds issued by the EU.
The market-cap-weighted index contains only bonds that are issued by the EU to finance the SURE programme which has a ceiling of EUR100 billion and the NextGenerationEU initiative which has an envelope of EUR750 billion. These initiatives help to mitigate EU member state unemployment risks and repair the immediate economic and social damage brought about by the coronavirus pandemic.
Lidia Treiber, Director, Research, WisdomTree, says: “The Covid-19 crisis has led to Europe unifying on several fronts to tackle the virus and stimulate an economic recovery. EU bonds could add another highly rated and liquid instrument with the capacity to become a larger share of the European Central Bank’s asset purchasing programmes. EU bonds benefit from a strong credit rating and can help investors reduce the credit risk across portfolios while benefiting from a yield pick-up relative to German sovereign bonds. While supply of EU bonds will rise, demand has been exceptionally high with primary issuance to date oversubscribed, owing to the EU being a high-quality issuer and an Environmental, Social and Governance (ESG) component attached to bonds issued under the SURE programme. We expect this trend of high demand to continue once the NextGenerationEU initiative rolls out.”
All bonds issued under the SURE programme fall under the social bond framework and a portion of EU bonds issued under the NextGenerationEU initiative could fall under the EU’s social or green bond frameworks.
The expected European Union bond issuance of EUR850 billion, as indicated by the European Commission, will position the EU as the second largest AAA rated issuer in Europe. The EU’S long-term budget together with the NextGenerationEU recovery instrument form the largest stimulus package ever financed through the EU budget totalling EUR1.8 trillion.
WisdomTree’s approach to fixed income is rooted in developing thoughtful exposures for investors. ETFs have helped to democratise access to fixed income generally and the recent product offerings have primarily been focused on increasingly dissecting the space. WisdomTree looks to fill this gap, focusing solely on investor needs by delivering exposures to unique asset classes or innovating through strategy.
Alexis Marinof, Head of Europe, WisdomTree, says: “ETFs provide a cost-efficient way to access fixed income strategies and are becoming the vehicle of choice for many fixed income investors. EUBO reflects our approach to product development and providing investors with unique exposures, whether that is by being first to market or developing differentiated strategies. By leveraging our heritage of innovation, we continue to build products which help European investors allocate to fixed income asset classes that have historically been inaccessible through the ETF wrapper, something we have done in AT1 CoCos, US Treasury floating rate notes and now EU bonds.”