First Trust Global Portfolios, the affiliate of First Trust Advisors LP, has launched a fund using carry and value risk premia to generate returns from government bonds.
The First Trust Low Duration Global Government Bond Ucits ETF is described as an active product that seeks income primarily, with capital growth as a secondary objective. It is currency hedged and aims to deliver lower interest rate risk than benchmarks such as the Bloomberg Barclays Global Treasury index.
The fund is aimed at wealth and discretionary managers, advisers and institutional investors. Based on a TER of 0.45, it will be available in a euro share class on the Euronext Amsterdam from 21 November.
Derek Fulton, CEO at FTGP, said: "This investment grade, currency hedged, global fixed income fund has a low to negative correlation to risky assets. We believe this can be a great diversifier to global equites, as well as offering a solution for asset managers if they want to dial up or dial down their interest rate exposure."
"True innovation in fixed income has, up until now, not been as widely adopted as in the equity ETF market but is undoubtedly gaining momentum. Until recently investors' choices have been limited to the star active manager or the market cap weighted passive benchmark solution. Investors or asset allocators searching for diversification can be hamstrung by the highly concentrated nature of the benchmark, which is often magnified by growing debt weighted schemes that overweight the most indebted countries. The largest two regional allocations - the United States and Japan - currently account for over half of the Bloomberg Barclays Global Treasury Index."
"By applying the principles of carry -incremental yield increase per unit of duration - and value -the difference in yield across curves post currency hedging costs - to select the most attractive countries and most attractive associated yield curve positioning for each country, this ensures the fund targets where investors can potentially be rewarded most for taking duration risk, most commonly in the level and steepness."
"In a world of compressed yields, the fund aims to meet the growing demand for innovation and factor-based investment within fixed income. The use of these transparent, robust and repeatable processes, combined into an ETF structure, offers a marrying of two great innovations and an attractive solution for asset allocators looking for diversification in fixed income. We are delighted to be bringing this ground-breaking new product to market."