Tabula's debut fund is a European Performance Credit fund which offers passive exposure to European corporate credit. It aims to provide a competitive yield without the interest rate risk of traditional corporate bond indices. The company says this ETF gives investors the same type of control as exercised by specialist credit managers, using credit default swap indices to manage risk. The fund is performance-focused and offers a competitive yield of approximately 5%. We put the fund to our Product Panel to see what they thought and here are their responses.
What the panel says:
Nicolas Rabener, Factor Research
Tabula's launch of the European Performance Credit ETF is timely given concerns about rising interest rates in Europe. The ETF targets investors interested in speculating on the quality of European corporate bonds without taking interest rate-risks. Instead of offering a portfolio of corporate bonds with a short position in government bonds like iShares' IRCP, Tabula's ETF provides access to two credit default swap (CDS) indices at 0.50% with 300% market exposure. An investor can replicate an unleveraged portfolio efficiently via two ETFs from Xtrackers that track both CDS indices, which are priced at 0.18% and 0.24%.
Oliver Smith, IG Portfolios
Innovation in the fixed income space has been sorely lacking, but the complexity of this EUR-denominated product means that it is designed for professional investors and it would be unwise for retail investors to see the headline yield and wade into it unsupervised. Through using swaps, Tabula has eliminated interest rate risk which will allow investors to receive income from selling insurance on a range of largely BBB (48%) and A-rated (27%) issuers. If the environment is benign for European assets, there is the offer of a 5% yield, but to generate this return the ETF uses 300% exposure to its underlying assets. Therefore, if credit default swap spreads widen, investors will make losses, in this case an estimated -14% for every 1% move higher in CDS rates (average spread is 325bps at present). Overall It's an interesting investment idea and could (for EUR portfolios) be used as a diversifying substitute for some conventional high-yield bond or equity exposure.
James McManus, Nutmeg
This is really a product targeted at a specific market - those investors who are comfortable with a synthetic ETF structure and who are looking to take on credit risk, with minimal or zero duration. Whilst this is not the first fixed income ETF to look to limit an investors duration exposure (there have been duration hedged strategies available previously from other providers), this is an innovative way to structure the portfolio. Clearly investors will need a strong understanding of credit market dynamics, given the isolated credit risk, and synthetic replication given the instruments utilised in the portfolios. The index offers an interesting and differentiated exposure to existing euro-credit ETFs given its focus on both investment grade and crossover securities.
