Invesco has expanded its government bond offering with the launch of an ETF focused on the longer end of the US Treasury market.
The firm writes that the Invesco US Treasury Bond 10+ Year UCITS ETF provides an investor with greater ability to tailor their portfolio’s duration and yield curve exposures to meet their own requirements, which may be particularly appealing given current levels of market volatility and uncertainty around future Federal Reserve policy. The ETF has the lowest cost among competing products in Europe, with an ongoing charge figure (OCF) of 0.06 per cent per annum.
Paul Syms, Head of EMEA Fixed Income ETF Product Management at Invesco, says: “Fixed income investors with duration or yield objectives can manage their exposures through maturity buckets. Pension funds may use this approach for liability-matching while others may adjust their portfolios to take account of opportunities across the curve. For instance, our research shows investors could maintain the same duration and gain potentially 35 basis points in additional yield by adopting a barbell approach – combining ETFs that target the one-three year and 10+ year maturity buckets – versus a holding in the seven -10 year bucket, which is currently looking relatively expensive.”
The new Invesco ETF aims to track the performance of the Bloomberg US Long Treasury Index. The Index measures the performance of US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with maturities of greater than 10 years. Inflation-linked bonds, floating-rate bonds, STRIP bonds and Treasury bills are excluded. The Index rebalances monthly.
Invesco’s portfolio managers will use portfolio modelling tools and techniques to buy and hold a proportion of the index securities that represents the characteristics of the entire index. The objective of this sampling method is to replicate the index performance as closely as possible while reducing the costs that would normally be incurred with full replication.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, says: “We continue to build out our ETF range with investor-driven solutions, including low-cost offerings for key markets as well as more innovative exposures. We expect fixed income to remain an important driver of growth in the European ETF market, and precision products such as these maturity ranges will enable investors to construct better portfolios and take more control of their investments.”
The firm’s latest ETF launch completes its US Treasury range, which has USD5.5 billion of assets currently under management. The range comprises five maturity buckets – 0-1 year, 1-3 year, 3-7 year, 7-10 year and now 10+ year – as well as an ETF that offers exposure across the entire curve.