Pimco, a leading bond fund manager, and Source, a specialist provider of exchange-traded funds, have announced that the Pimco EM Advantage Local Bond Index Source ETF is now available in GBP on the London Stock Exchange.
Recent market volatility may have created an entry point for investors looking to make a strategic allocation to emerging markets. The new GBP trading line makes this easier for sterling-denominated investors.
The fund’s new GBP trading line has been assigned the ticker EMLP.
The fund, which was previously tradable in USD only, has assets of $176 million and is linked to the innovative Pimco EM Advantage Local Currency Bond Index.
This index tracks the performance of a GDP-weighted basket of locally-denominated government debt and currencies of emerging market countries. The index currently offers exposure to 12 emerging market countries.
For a country to qualify for inclusion in the index it (i) must be classified by the World Bank as having a low or middle per capita income, (ii) must have greater than a 0.3% share of World GDP, (iii) must be rated BB3 or higher, (iv) must be accessible to foreign investors through government bonds or currency forwards, (v) must not be subject to EU or US sanctions, and (vi) must have a transparent source of daily pricing.
A country’s weight in the index is set initially to the ratio of its average world GDP weight over the last five years to the total of the same for all countries included in the index, subject to a 15% country cap. Countries that exceed the limit are reduced to 15% and the face value of each of their bonds is adjusted on a pro-rata basis. Similarly, the face values of bonds of all other issuers that fall below the 15% cap are increased on a pro-rata basis.
For countries represented by bonds, the index only includes fixed rate non-callable local currency sovereign debt with at least one year remaining term to final maturity as of the rebalancing date. Bond weights within the country are based on their relative capitalisations. For countries represented by forwards/NDFs, short-dated contracts are used.
The standout feature of the index is the GDP-weighting methodology. This ensures that emerging market countries with growing economies and strong fundamentals are emphasised, while avoiding over-allocation to highly indebted countries.
Howard Chan, ETF product manager at Pimco, EMEA, said: “Due to its exposure to the systemically important emerging market countries via various local currency fixed instruments, the EM Advantage ETF offers investors a lower duration and lower volatility alternative to traditional EM local debt exposure.”
Ted Hood, CEO of Source, added: “Investors are increasingly questioning the value of traditional benchmarks. By partnering with Pimco, we are able to offer expertly engineered fixed income products. This GBP listing will make that expertise accessible to a broader range of investors.”
The fund is physically replicated and has an annual management fee of 0.60%. It has UK Reporting Status and is eligible for ISAs and SIPPs.