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Danny Dolan, China Post Global

China Post Global launches Market Access CoCo bonds ETF

China Post Global (CPG) has launched the Market Access Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index UCITS ETF.

The firm writes that the new ETF provides diversified exposure to euro-denominated AT1 contingent convertible (CoCo) bonds, and is the first ever EUR-based ETF tracking a European bank CoCo bond index.
The fund will track the performance of the Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index, which is the well-established institutional benchmark for the European AT1 bond sector. The index selects and weights additional tier 1 (AT1) CoCo bonds based on their type, credit rating, liquidity, investability and time to maturity.
“This is an exciting new ETF for which we’re seeing considerable demand from institutional investors” says Danny Dolan (pictured), Managing Director of China Post Global (UK). “Investors appreciate its transparency and the lack of FX risk, as it’s a euro-denominated ETF providing exposure to a purely euro index. The ETF tracks the same iBoxx AT1 index used in the institutional swap market, and investors appreciate the additional liquidity this entails.”
“We are excited that China Post Global is launching the first ETF referencing our iBoxx EUR Contingent Convertible AT1 index and bringing an innovative product to market,” says Max Ruscher, Director for Indices at IHS Markit. “This ETF creates a new opportunity for investors to gain exposure to the EUR CoCo market, while expanding the tradable ecosystem supported by iBoxx indices.”
The ETF uses full physical replication and has a total expense ratio of 0.48 per cent. With its diversified, fully rules-based strategy, it provides a cost-effective alternative to actively-managed CoCo bond funds. 
CoCo bonds are a type of bond that may either convert into shares of the issuer or be written down in value partly or fully, following a predefined trigger event. A trigger event typically means a specific capital ratio of the issuer falling to a specific level, or the issuer's regulator decreeing that the bond be triggered.
Because of the risk of conversion or write-down, CoCo bonds typically have a higher coupon than regular bonds from the same issuer, and are therefore attractive to many institutional investors who seek higher yield and can accept the additional risk.  
The iBoxx index currently includes 40 bonds from 19 different issuers. The denomination per share is EUR100,000, as the ETF is only intended for institutional and professional investors.  The minimum creation and redemption amount is EUR1 million, significantly lower than other CoCo ETFs.
Lead distributor for the ETF is Mint Partners, a division of BGC Brokers L.P. The Market Access Markit iBoxx EUR Contingent Convertible Liquid Developed Market AT1 Index UCITS ETF will be listed on Euronext Amsterdam, the London Stock Exchange and SIX Swiss Exchange, and registered in the UK, Austria, Germany, Italy, Luxembourg, Netherlands and Switzerland.

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