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Focus: Lombard Odier Investment Managers and ETF Securities list first three fixed income smart beta ETFs on the London Stock Exchange

Listing of Lombard Odier Investment Managers and ETF Securities range of three fundamentally-weighted, smart beta government and corporate fixed income ETFs….


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Jan Straatman, Global Chief Investment Officer, Lombard Odier IM


Lombard Odier Investment Managers a pioneer in smart beta fixed income investing, and ETF Securities, one of the world’s leading innovators of exchange traded products (“ETPs”), have today listed a range of transparent, cost-effective and UCITS-compliant fundamentally-weighted fixed income ETFs on the London Stock Exchange. 

Until now, Lombard Odier IM’s fundamental fixed income strategies were only available to mutual fund investors, however these products look to offer smart beta bond opportunities to a wider base of investors through wealth managers, financial advisers and investment platforms.  They are available in Sterling, Euro and US Dollar denominations and are both ISA and SIPP eligible. 

The three new ETFs are:

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%

 Jan Straatman, Global Chief Investment Officer, Lombard Odier IM commented: “We are extremely pleased to introduce our three fundamentally-weighted, smart beta government and corporate fixed income ETFs to the European market.  Lombard Odier IM have over five-years of experience in fundamentally-weighted fixed income investing, and our partnership with ETF Securities enables us to offer a wide range of investors what we believe to be a cost effective and common sense approach to fixed income investing focusing on an issuer’s ability to repay debt rather than the capacity to borrow.”

Mark Weeks, Chief Executive Officer, ETF Securities added: “The announcement of our partnership with Lombard Odier IM to offer fundamentally-weighted, smart beta government and corporate fixed income ETFs has been extremely well received by the market. It offers a systematic rules-based analysis of a country’s or company’s fundamentals to create an index that gives investors an efficient exposure to fixed income. We look forward to working with Lombard Odier IM as we continue to develop further investment solutions that are truly innovative.

 Rationale for ETF investing

The new suite of ETFs can be used by both retail and institutional investors as simple, effective and low-cost portfolio building blocks, providing a core allocation to fixed income. We believe the typical characteristics of index-based ETFs, namely their intraday liquidity combined with the transparency afforded by the stringent regulatory standards required for indices, meet the growing investor appetite for smart, low-cost, diversified fixed income investment solutions. These new ETFs, listed today, aim to capture the increasing shift towards more cost-effective investment solutions but, at the same time, are designed to provide an improved risk-adjusted return profile.

 Advantages of the fixed income smart beta ETF approach

The majority of fixed income investors are invested in strategies that follow a traditional market capitalisation approach, which results in investors lending more to the issuers with the most debt. At the heart of the fundamentally-weighted approach offered by the ETFS Lombard Odier IM’s products, is the principle that bond investors are lenders and investors should consider a borrower’s capacity to repay their debts rather than their capacity to borrow more. This approach assesses fundamental factors for government and corporate issuers. For governments, the factors include size of revenues measured by gross domestic product (“GDP”), level of indebtedness utilising debt-to-GDP along with 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. Lombard Odier IM and ETF Securities believe this produces a more favourable balance between risk and return for investors.

ETFS Lombard Odier IM Euro Corporate Bond Fundamental GO UCITS ETF:

The investment objective of the ETFS Lombard Odier IM Euro Corporate Bond Fundamental GO UCITS ETF is to track the LOIM Fundamental Euro Corporate Index (the “Index”) by investing primarily in an optimised portfolio of fixed-rate EUR-denominated corporate bonds that, as far as possible and practicable, consists of the component securities of the Index. The Index provides long-only exposure to EUR-denominated investment grade corporate debt *, whose weights are determined according to Lombard Odier IM’s proprietary fundamental weighting methodology, which uses fundamental factors to assess issuers’ creditworthiness and identify those believed to be best placed to repay their debt. The approach is an alternative to traditional market-cap investing which over-weights those issuers with the greatest level of outstanding debt. This approach aims to better diversify portfolio risk as well as improve the risk-adjusted returns (the Sharpe ratio). The Index is constructed using fundamental factors which take into account each sector’s contribution to the real economy as well as the creditworthiness of each issuer based on the size of their revenues, solvency, cash flow, EBITDA growth, and for financial issuers, the quality of the assets on their balance sheets.

* All corporates who issue EUR-denominated investment grade debt. Bonds included have at least 1.5 years to maturity as at each semi-annual determination date, pay fixed-rate coupons and at least EUR 500mn outstanding.

ETFS Lombard Odier IM Global Corporate Bond Fundamental GO UCITS ETF:

The investment objective of the ETFS Lombard Odier IM Global Corporate Bond Fundamental GO UCITS ETF (the Fund) is to track the LOIM Fundamental Global Corporate Index (the “Index”) by investing primarily in an optimised portfolio of fixed-rate EUR, GBP and USD corporate bonds that, as far as possible and practicable, consists of the component securities of the Index. The Index provides long-only exposure to EUR, GBP and USD denominated investment grade corporate debt*, whose weights are determined according to Lombard Odier IM’s proprietary fundamental weighting methodology, which uses fundamental factors to assess issuers’ creditworthiness and identify those believed to be best placed to repay their debt. The approach is an alternative to traditional market-cap investing which over-weights those issuers with the greatest level of outstanding debt. This approach aims to better diversify portfolio risk as well as improve the risk-adjusted returns (the Sharpe ratio). The Index is constructed using fundamental factors which take into account each sector’s contribution to the real economy as well as the creditworthiness of each issuer based on the size of their revenues, solvency, cash flow, EBITDA growth, and for financial issuers, the quality of the assets on their balance sheets.

* All corporates who issue EUR, GBP and USD-denominated investment grade debt. Bonds included have at least 1.5 years to maturity as of each semi-annual determination date, pay fixed-rate coupons, and at least EUR 500mn, GBP 350mn, USD 500mn outstanding.

 ETFS Lombard Odier IM Global Government Bond Fundamental GO UCITS ETF:

The investment objective of the ETFS Lombard Odier IM Global Government Bond Fundamental GO UCITS ETF is to track the LOIM Fundamental Global Government Index (the “Index”) by investing primarily in an optimised portfolio of fixed-rate government bonds denominated in the currencies of the relevant governments’ country that, as far as possible and practicable, consists of the component securities of the Index.  The Index provides long-only exposure to the debt of global developed countries*, whose weights are determined according to Lombard Odier IM’s proprietary fundamental weighting methodology, which uses fundamental factors to assess issuers’ creditworthiness and identify those believed to be best placed to repay their debt. The approach is an alternative to traditional market-cap investing which over-weights those issuers with the greatest level of outstanding debt. This approach aims to better diversify portfolio risk as well as improve the risk-adjusted returns (the Sharpe ratio).  The Index operates a three-step fundamental approach, which takes into account economic inputs such as current indebtedness, size of revenues and social and political stability and thus goes further than GDP or fiscal-strength weighted alternatives to assess the creditworthiness of an issuer. Furthermore, rather than maintaining static allocations, the Index is adjusted on a monthly basis to take into account prevailing economic and market conditions.

* All countries which are members of the Organisation for Economic Cooperation and Development (OECD). Bonds included with at least 1-year maturity as of each calendar month, pay fixed-rate coupons and are denominated in the currency of each relevant Government’s country.

Source: ETFWorld.co.uk

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