Listed first four fixed income smart beta ETFs on Borsa Italiana

ETF Securities and Lombard Odier Investment Managers have listed a range of transparent, cost-effective and UCITS-compliant fundamentally-weighted fixed income ETFs on the Borsa Italiana…..

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Fund name ISIN TER (p.a.)
ETFS Lombard Odier IM Euro Corporate Bond Fundamental GO UCITS ETF IE00BSVYHT42 0.30%
ETFS Lombard Odier IM Global Corporate Bond Fundamental GO UCITS ETF IE00BSVYHV63 0.35%
ETFS Lombard Odier IM Global Government Bond Fundamental GO UCITS ETF IE00BSVYHQ11 0.25%
ETFS Lombard Odier IM Emerging Market Local Government Bond Fundamental GO UCITS ETF IE00BSVYHP04 0.55%


Lombard Odier IM’s fundamental fixed income strategies previously in Italy were only available to mutual fund investors. However, the following ETFs, offer easy access to smart beta bond opportunities: the Euro Corporate, Global Corporate, Global Government, and Emerging Market Local Government Bond Fundamental ETFs. These were listed on the London Stock Exchange and Swiss SIX Exchange last year, amassing over US$225mn in assets under management.

Quality-based diversification in an investor’s bond allocation

The majority of fixed income investors are invested in strategies following a traditional market capitalisation approach, meaning investors lend more to the issuers with the most debt. The new approach offered by ETF Securities and Lombard Odier IM’s products assesses fundamental factors for government and corporate issuers; encouraging bond investors to think of themselves as lenders . The strategy prioritises a borrower’s capacity to repay their debts, rather than their capacity to borrow more balancing between risk and return for investors.

For governments, the factors include size of revenues measured by GDP, level of indebtedness utilising debt-to-GDP, along with indicators for fiscal and political stability.

For corporate issuers, each sector’s contribution to the economy is looked at before assessing each individual issuer’s revenues, level of indebtedness, cash flow and asset quality.

Rationale for ETF investing

The rationale of using ETFs for fixed income investing is being driven by liquidity concerns in the market. Fixed income ETFs provide an additional layer of liquidity on the stock exchange to address some of these concerns as it provides investors with the ability to discover the price of their bond portfolio and the ability to trade at any point during stock exchange hours. To address concerns around credit quality, the new suite of fundamental fixed income ETFs can be used by investors as simple, effective and low-cost core allocations in fixed income.

Massimo Siano, Head of Southern Europe, ETF Securities (UK) said: “We’re very pleased to be listing these ETFs on the Borsa Italiana. Italy is an important growth market for us and we are fully committed to making our products accessible to all investor types. With bond liquidity increasingly being a source of concern for investors, investors in ETFs have extra liquidity support from the secondary market to help mitigate this. This liquidity support coupled with the ability to trade intraday makes the ETF an ideal access route into fixed income at a time when liquidity matters.

ETF Securities has 215 products listed on the ETFplus segment of the Borsa Italiana making it the segment’s largest issuer per number of products. Since our first launch on the Italian exchange in 2007 we have seen huge demand for even more innovative products from our clients and responding to their needs has always been central to our strategy: This is the first time that fundamental fixed income is available to Italian investors in an ETF wrapper and adding fixed income solutions to our already strong franchise across commodities, currency, specialist equity and short & leveraged ETPs is another milestone in delivering intelligent alternatives for investors.”

Jérôme Collet, Senior Portfolio Manager, Fundamental Fixed Income at Lombard Odier IM commented: “Central bank intervention to fulfil economic objectives has fundamentally altered fixed income markets. The sustained use of quantitative easing, coupled with low interest rates forces investors to look afield for yield. Furthermore, they are facing unrewarded risks arising from increased herding and tighter regulations. Given the backdrop of sustained disinflation, low economic growth and heightened concern around liquidity, it is time for investors to redesign their fixed income exposure and to pay attention to the fundamental long-term quality and liquidity of bond investments. Rather than accessing opportunities through traditional market-cap benchmarks – which tend to reward leverage and can create bubbles, instead focus on the credit quality of liquid issuers at a reasonable price.”

The partnership between ETF Securities and Lombard Odier IM was launched in March 2015 and a number of transparent, cost-effective and UCITS-compliant fundamentally-weighted fixed income ETFs have been listed across Europe.


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