Fixed income focus earns IHS Markit index award

Sebastian Meyer ETF

Sebastian Meyer (pictured), product management director, indices says that IHS Markit is a very effective partner for ETF issuers.

“We work closely with them, with a large research and design department that supports them from an early stage and through a number of iterations and provides a lot of input and data,” he says. “We then work alongside them up to the launch and deliver within tight timelines.”

The firm offers a broad range of indices but primarily focuses on the fixed income markets in Euros, US dollars and sterling.

“In the US we are well known for our liquid indices which are the iBoxx liquid investment grade and liquid high yield which underpin the HYG ETF and LQD ETF, both from iShares,” Meyer says.

HYG is one of the most widely used high yield bond ETFs, with exposure to a broad range of US high yield corporate bonds, while LQD has exposure to US dollar-denominated, investment-grade corporate bonds, allocating 95 per cent of its total assets in investment-grade corporate bonds to mitigate credit risk.

“We have a strong partnership with iShares and also work with other ETF issuers such as Amundi, Lyxor, DWS, SSGA and other issuers in Asia,” he says.

“We are well known for being a very innovative firm in terms of creating new indices and designs.”

New launches in the US have had added ESG, with LQD gaining an ESG friendly sibling.

“We worked with MSCI ESG data, taking the existing design of LQD and adding an overlay of ESG criteria to make it more amenable for ESG investors, screening out weapons, tobacco oil and things that have some controversies around them,” Meyer explains.

“There is a very strong trend towards ESG products and we are working with our clients to satisfy and meet this demand because ESG, especially in Europe, has lots of regulation coming in that firms have to have a product portfolio that caters to ESG requirements, particularly in ETFs.

“There is no legislation in the US, but there is strong demand for ESG products in the fixed income space, as it was all in equities before. It’s still early for ESG fixed income but it is a growing market providing products to this growing need.”

A latest US launch for IHS Markit is the iBoxx USD Liquid Investment Grade BBB index which is something of a recovery play. BBB grade is still investment grade in the US, and supplies a reasonable yield, Meyer says. “Especially with the coronavirus crisis, there has been lots of cyclical companies that were downgraded and came close to the border of investment grade high yield.

“The expectation is that with the cyclical recovery in the economy they will do well and so this is something of a recovery play.” 

Best Index Provider – Fixed Income ETFs

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