iShares has launched the first ETF to offer exposure to global AAA- and AA-rated government bonds.
The new fund, the iShares Global Government AAA-AA Capped Bond Fund is coming at a time when investors are increasingly concerned over the uncertainty of high-quality government bond risk, particularly in Europe, and are looking for diversification plays in high-quality government debt.
The new ETF is listed on the London Stock Exchange, is physically backed, and carries a total expense ratio of 20 basis points. Alex Claringbull, senior fixed income portfolio manager for BlackRock's iShares fixed income group, is the portfolio manager on the new fund. The ETF is only listed on the London Exchange, so U.S. investors would incur tax consequences if they invested in the product, cautioned Laura Batty, a spokesperson for iShares (U.K.).
The new ETF will try to closely track the returns of the Barclays Global Government AAA-AA Capped Bond Index, which offers exposure to local currency bonds issued by governments of developed countries worldwide. As of the end of August, the index contained bonds issued by 19 countries denominated in 13 currencies.
The fund will invest only in bonds which are rated AA3 or higher using the median of ratings given by the three major credit rating agencies—Fitch Ratings, Moody's and Standard & Poor's.
“This launch recognizes the challenges investors now face with a decreasing number of highly rated government bond issuers available,” said Claringbull.
The new ETF is the 12th fixed income ETF iShares has launched in Europe so far this year. With the new fund, iShares now offers 56 fixed income ETFs.