Germany’s stock exchange has seen what is said to be the first exchange-traded fund (ETF) that tracks the contingent convertible bond market – a type of debt issued by banks for their regulatory funding requirements.
UniCredit Bank subsidiary Structured Invest, and asset manager Axiom Alternative Investments (Axiom AI), have launched the UC Axi Global CoCo Bonds Ucits ETF, saying it is the first ETF to give a market-weighted exposure to the entire liquid contingent convertible – or “CoCo” – bond market.
Last yearWisdomTree launched a CoCo bond ETF based on issuance by European banks related to their additional tier 1 (AT 1) debt.
The Axiom product taps into the AT 1 debt market and also the restricted tier 1, or RT 1, market.
CoCo bonds are a form of hybrid debt that the banks issue to manage their solvency risk. The bonds can convert to equities or have their principal written down to absorb the issuer’s capital losses.
The latest ETF tracks the euro-hedged Solactive AXI Liquid Contingent Capital Global Market TR Index.
David Benamou, founder and chief investment officer of Axiom AI, said there were reasons to see CoCos as presently attractive.
“The latest bank stress tests showing capital levels in excess of 3% above conversion trigger, coupled with the current upgrade momentum for European banks by rating agencies are both very positive signals for the asset class moving forward,” he said.
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