State Street Global Advisors has introduced three currency-hedged share classes for the recently launched European-listed SPDR Barclays Global Aggregate UCITS ETF. The new share classes provide currency hedging relative to US dollars, pounds sterling, or euros.
The new share classes offer exposure to the Bloomberg Barclays Global Aggregate Index while hedging currency risk relative to the US dollar, pound sterling, or euro.
The ETF launched on Xetra at the end of January 2018 with London Stock Exchange and Borsa Italiana listings following shortly after.
The underlying Bloomberg Barclays Global Aggregate Index is one of the world’s most widely followed bond indices, covering 94% of the investment-grade fixed income universe.
It tracks the performance of over 20,000 securities, from more than 2,400 issuers across 24 currencies in more than 70 countries.
The index provides aggregate exposure, incorporating treasury/government, government-related, corporate and securitized fixed-rate bonds from developed and emerging markets.
The index currently yields 2.0% with an effective duration of 7.0 years. The US is the largest country exposure with 38.2% weight, followed by Japan (17.4%) and France (6.1%). The majority of securities in the index are treasury/government bonds (63.2%), with the next largest contributors being mortgage-backed securities (12.8%) and corporate – industrial (9.9%).
Looking at the credit profile, the majority of the portfolio comprises Aaa securities (41.1%), followed by A (27.2%), Baa (16.3%), and Aa (15.5%).
The ETF is physically replicated, using an sampling-based approach. Due to the vast number of securities in the index, it is impractical for the fund to hold all the index constituents.
The US dollar-hedged and sterling-hedged share classes trade on both Deutsche Börse and London Stock Exchange in USD and GBP respectively. The euro-hedged share class is listed on Deutsche Börse and Borsa Italiana where it trades in euros.
The indices are 100% hedged to their respective currency by selling the forwards of all the currencies in the parent index at the one-month forward rate. The performance of the different indices varies widely, illustrating the impact of currency movements on total returns.
The 1-year and 5-year annualised returns of the unhedged index were 7.39% and 0.79% respectively. This compares to 2.67% and 3.02%, respectively, for the USD hedged index; 1.59% and 2.91% for the GBP hedged index; and 0.70% and 2.18% for the EUR hedged index.
Each class of share has the same total expense ratio of 0.10% as the original unhedged version of the fund.
The fund competes with the iShares Global Aggregate Bond UCITS ETF (AGGG LN) which was unveiled on LSE in November 2017. The iShares funds also charges a TER of 0.10% and has managed to accumulate over $920 million assets under management since its launch.