Lombard Odier Investment Managers, a fixed income specialist, and ETF Securities, which provides exchange-traded products including ETFs, have joined forces to offer an array of fundamentally-weighted fixed income ETFs.
Fundamentally-weighted fixed income strategies are a form of smart beta investing, designed to appeal to investors concerned about extremely low bond yields currently available on many fixed income assets. They also differ from standard fixed income index products, which are based on market capitalisation and hence give more weighting to the largest issuers of debt, who could be credit risks. In contrast, using a fundamentally-weighted approach, borrowers are assessed on their capacity to repay debts.
Lombard Odier chief executive officer, Hubert Keller, said: “In fixed income markets, a traditional passive approach lends money to the most indebted. If someone already owes you a lot of money, is it a good idea to lend them more? We use fundamental factors, based on the real economy, to determine the most appropriate allocation.”
The new ETFs will be listed on the London Stock Exchange from mid-April and will give fundamentally-weighted exposure to government bonds and corporate bonds. An emerging market local bond ETF is scheduled to be launched in early May. Up to now, Lombard Odier only offered mutual fund products.