Tabula launches Europe’s first Asia ex-Japan high yield ESG USD corporate bond Ucits ETF

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European fixed income ETF provider Tabula Investment Management has launched Europe’s first Asia ex-Japan High Yield Corporate USD Bond ESG UCITS ETF (TAHY on the LSE). 

The ETF was developed in partnership with Haitong International Asset Management, an investment manager with considerable expertise in the Asian high yield market as well as strong ESG credentials.

The new Tabula Haitong Asia ex-Japan High Yield Corp USD Bond ESG UCITS ETF aims to enhance both liquidity and ESG profile, while maintaining an attractive yield (currently ~9%1), a duration of ~2.6 years, and is classified as Article 8 under EU Sustainable Finance Disclosure Regulation (SFDR).

The ETF tracks a new index developed by Tabula, Haitong International and IHS Markit. The iBoxx MSCI ESG USD Asia ex-Japan High Yield Capped Index combines proven iBoxx index construction expertise with high-quality MSCI ESG data. It applies a more stringent liquidity filter than its parent index, the iBoxx Asia ex-Japan USD Corporates High Yield Index, and only includes bonds that have a minimum size of US$250 million, plus strict ESG screening to exclude issuers involved in certain controversial business activities. The index also uses ESG tilts, and over-weights issuers with higher ESG ratings, and/or positive ESG momentum.

“While the opportunity in Asian high yield is clear, there are also some challenges to address,” says Tabula CEO Michael John Lytle. “With high yield issuers, there can be greater concerns about ESG, particularly governance, and liquidity is also a consideration. Local expertise can significantly improve trading efficiency.”

“Working in partnership with Haitong International, leveraging their considerable experience and on-the-ground presence in the region, as well as IHS Markit, we have been able to address these opportunities.

“Until recently, European ETF investors could only access the Asian USD high yield corporate bond market via broad emerging market or global ETFs. Our new ETF supports far more granular asset allocation decisions.”

Frederick Chu, Head of ETF Business at Haitong International, says: “Asian credit is now a trillion-dollar asset class - and China the world’s second largest bond market - but many European investors are significantly underweight. This ETF provides straightforward access to the USD segment of Asia’s high yield market, while also addressing ESG and liquidity challenges.

“As well as yield, this market can provide interesting diversification benefits in a fixed income portfolio, since it is often at a different stage in the market cycle. It is also worth noting that default rates for USD Asian high yield bonds have been significantly lower than for US high yield bonds.”

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