European ETF provider Tabula Investment Management Limited (Tabula) has launched the first Gulf Cooperation Council (GCC) government bond ETF.
The Tabula GCC Sovereign USD Bonds UCITS ETF (TGCC LN) is designed to provide exposure to a broad portfolio of USD-denominated government bonds issued by six GCC countries (Saudi Arabia, the UAE, Qatar, Oman, Bahrain and Kuwait).
Tabula writes that as the largest oil producing region in the world, the GCC represents an attractive investment opportunity for investors seeking exposure to rapid economic development and countries with ambitious plans to liberalise and diversify their economies.
Until now, European ETF investors could only access the Middle East bond market via broad EM or global ETFs. GCC sovereign USD bonds are high-quality emerging market bonds, offering diversification benefits from other global bonds. TGCC addresses those challenges and supports far more granular asset allocation decisions.
TGCC aims to track the ICE Gulf Cooperation Council Government Bond ex-144a Index (the Index; ticker: EGCC Index). Developed by Tabula, the Index is composed of approximately 100 AA- to B-rated government bonds denominated in USD. To be included, bonds require a minimum 1yr maturity and a minimum amount outstanding of USD500 million. The Index currently provides exposure to six GCC countries and applies a 25 per cent country cap. The Index has a current yield of 5.2 per cent and a duration of 7.8 years.
Not all Emerging Market sovereign bonds behave alike
“With recession fears and continued economic uncertainty remaining a predominant global concern, investors may now find it an auspicious time to reassess asset allocation decisions, with a view to increasing diversification across regions and instrument types,” says Tabula CEO Michael John Lytle. “Sovereign bonds issued by GCC countries have historically exhibited a superior Sharpe ratio when compared to broad EM, and still offer high income. As the GCC region undertakes numerous initiatives to diversify revenue streams away from oil and gas, a more granular allocation to the region could play a significant role in building more defensive portfolios.”
Tabula CIO, Jason Smith, adds: “The GCC includes some of the highest growth economies globally. These countries have been implementing economic and fiscal reforms in recent years, leading to an improvement in their creditworthiness. In addition, they have large reserves of foreign currency which helps maintain stable economic growth and makes their bonds relatively lower risk compared to other emerging markets.”
The Tabula GCC Sovereign USD Bonds UCITS ETF (TGCC LN) is listed on the London Stock Exchange, with USD30 million in current assets, and an OCF of 0.45 per cent.