Tabula Investment Management has introduced a GBP-hedged share class for its ETF targeting US dollar-denominated government bonds issued by the Middle Eastern member states of the Gulf Cooperation Council (GCC).
Jason Smith, CIO of Tabula Investment Management.
Available on London Stock Exchange, the Tabula GCC Sovereign USD Bonds UCITS ETF (TGGD LN) enables UK investors to access GCC government bonds while minimizing currency risk between the US dollar and pound sterling.
The ETF first debuted last month and has since accumulated $30 million in assets.
The Gulf Cooperation Council is a regional, intergovernmental, political, and economic union comprising six Arab states in the Persian Gulf: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
Tabula notes that these countries represent some of the fastest-growing emerging markets globally.
Additionally, as the largest oil-producing region in the world, Tabula believes the GCC represents an attractive investment opportunity for investors seeking exposure to rapid economic development and countries with ambitious plans to liberalize and diversify their economies.
Prior to the fund’s launch last month, European ETF investors could only access the Middle East bond market via broad emerging markets or global ETFs. Tabula’s ETF addresses those challenges, supporting more granular asset allocation decisions by investors.
Jason Smith, CIO of Tabula Investment Management, commented: “As a basket, 10-year GCC government bonds are currently offering yields almost 2% higher than US Treasuries. The GCC countries have low debt-to-GDP ratios and increasingly dynamic economies that could be considered healthy compensation for investors trying to inject more yield into their portfolio.”
Stefan Garcia, Chief Commercial Officer at Tabula Investment Management, added: “TGGD has been launched in response to demand from UK investors for more granular asset allocation options, and provides an ETF exposure that until this year did not exist. We believe the fund will be of great value to UK investors looking for attractive yields and exposure to the exciting growth potential of the GCC.”
Methodology
The fund is linked to the ICE Gulf Cooperation Council Government Bond ex-144a Index which was developed by Tabula in partnership with ICE Index Solutions.
The index consists of government bonds denominated in US dollars that were issued by any of the six countries comprising the GCC. Eligible bonds require a minimum of one year remaining to maturity and a minimum amount outstanding of $500m. Constituents are weighted by market value while applying a country cap of 25%.
As of the end of January, the index contained 88 bonds with a yield to maturity of 4.85% and an effective duration of 7.86 years.
Bonds from the UAE, Saudi Arabia, and Qatar dominate the index with each country representing between 22.8% and 25% of the total weight, followed by Oman (14.2%), Bahrain (10.4%), and Kuwait (2.4%).
Three-quarters of the index weight was allocated to bonds rated investment grade with AA (48.1%) and A (27.3%) being the most notable credit bucket exposures. The remaining index weight was assigned to bonds rated BB (14.2%) and B (10.4%).
The new GBP-hedged share class comes with an expense ratio of 0.50%. Income is distributed on a semi-annual basis.
The original, accumulating, USD-denominated share class (TGCC LN) costs 0.45%.