Rolle im Portfolio
IShares Euro Government Bond 7-10y offers investors exposure to the one of the most liquid maturity segments of the investment-grade eurozone government bond market.
This exchange-traded fund can be used tactically to micromanage interest risk exposure. The ETF’s long-dated-biased maturity exposure lends itself better to lengthen duration, albeit at the margins and assuming the initial portfolio is heavily biased towards short- and medium-dated maturities. This tactical use would require a good knowledge of yield curve dynamics. As such, its use is perhaps aimed at investors with the ability to comprehensively monitor economic developments and their implications for monetary policy.
Some investors may consider this ETF an appropriate instrument to manage cash holdings in portfolios. However, the ETF’s exposure implies a substantially higher level of risk relative to alternatives tracking shorter-dated benchmarks and/or restricted to top-rated rather than all eurozone issuers. Still, this higher risk would be met with potentially higher returns.
This ETF is marketed in both a dividend distributing and accumulating versions. The bulk of assets is held in the distributing ETF.
Fundamentale Analyse
The eurozone’s challenge is now one of expanding its recovery in the face of an evolving risk landscape—in particular, uncertainty about negotiations on Brexit (that is, the UK’s exit from the EU). Gross domestic product growth, though up from the lows, remains below potential, and there remain structural problems, most notably unemployment and lack of credit flow to SMEs in some peripheral economies. All the while, inflationary pressures remain absent.
The eurozone monetary policy remains very accommodative. The European Central Bank has brought interest rates down to zero and pushed the deposit rate into negative terrain. Perhaps more importantly, it has rolled out a wide-ranging programme of bond purchases (that is, quantitative easing or QE) covering both government and, since March 2016, corporate debt.
In December 2016, the ECB announced that the QE programme will run until at least the end of 2017. However, from April 2017 the total amount of monthly purchases will be reduced to EUR 60 billion from EUR 80 billion. All the while, the ECB continues to provide ample liquidity to the eurozone banking sector.
The ECB’s ultra-easy policy stance should only be expected to remain in place for a very protracted period; certainly well past the horizon of the QE programme.
In principle, eurozone sovereign bonds should remain well supported by policy fundamentals, particularly so in the shorter end of the curve. This would mean close to zero, or even negative, yields for the most creditworthy issuers.
In the long run, assuming the ECB measures have the desired effect and the eurozone economy reflates, a trend for higher eurozone bond yields--and thus lower prices--may come into place.
In a situation of changing monetary policy conditions, the tactical usage of this ETF to manage duration would come fully into play.
Indexkonstruktion
The Barclays Euro Government Bond 10 Year Term Index measures the performance of government bonds issued by the eurozone’s major issuers (Germany, France, Italy, Spain, and the Netherlands) with a maturity around the 10-year mark. Barclays term indexes only include bonds near to their original term, rather than selecting all bonds in a maturity range. In practice, this means the basket of constituents for term indexes tends to be much smaller and subject to more frequent turnover relative to more flexible benchmarks. The index must contain a minimum of six bonds. Eligible bonds must have a minimum outstanding of EUR 2 billion and a minimum remaining life of seven years. The index is weighted by market capitalisation, subject to a cap of 30% per individual bond. Index values are calculated using mid-market prices provided by Barclays Capital market-makers towards the close of London trading. The index is rebalanced on a monthly basis on the last calendar day of the month. Intramonth bond coupon income is reinvested into the index at rebalancing.
Fondskonstruktion
IShares uses physical replication to track the performance of the Barclays Euro Government 10 Year Term Index. The sole focus on a small number of highly liquid bonds allows iShares to fully replicate the index’s basket of constituents. However, there may be minor differences in the statistical weightings of individual bonds between the ETF’s basket and the index. As such, iShares prefers to describe the replication methodology as sampling. This ETF distributes dividends semiannually. As we write (early December 2016), the fund holds medium-dated government paper issued by the five major issuers. The statistical distribution by country is reflective of issuance patterns in this maturity segment and the resulting market capitalisation value. Germany, France, Italy, and Spain each typically account for 20%-25% of the basket, with the Netherlands accounting for around 7%-10%. IShares engages in securities lending with the holdings of the ETF. BlackRock acts as investment manager on behalf of iShares. The ETF can lend out up to 100% of net asset value. The average on loan for this ETF in the 12 months to the end of September 2016 was 45.6% for an annualised return of 5 basis points. Lending operations are backed by taking UCITS-approved collateral greater than the loan value and by revaluing loans and collateral on a daily basis. The collateral is held in a ringfenced account by a third-party custodian. The degree of overcollateralisation is a function of the assets provided as collateral but typically ranges from 102.5% to 112%. Lending revenue is split 62.5/37.5 between the ETF and BlackRock, respectively.
Gebühren
The annual ongoing charge for this ETF is 0.20%. This is at the top end of the range of ETFs tracking indexes providing exposure to the seven- to 10-year segment of the eurozone government bond market. Additional costs potentially borne by investors and not included in the ongoing charge include bid/offer spreads and brokerage fees when buy/sell orders are placed for ETF shares. There are also rebalancing costs whenever the index changes composition. The ETF’s tracking difference shows that the ETF’s net returns routinely come in a few basis points below the ongoing charge. This is likely due to the substantial revenues generated by the securities lending programme.
Alternativen
There are plenty of ETFs providing this maturity-segmented market exposure. However, most track different indexes, so there may be differences in bond/country selection criteria.
Lyxor, db x-trackers and Amundi are the most popular as measured in terms of assets under management. Lyxor EuroMTS Investment Grade 7-10 ETF (physical; ongoing charge 0.165%), db x-trackers iBoxx Euro Sovereign 7-10 ETF (physical; 0.15%) and Amundi EuroMTS Investment Grade 7-10 ETF (synthetic; 0.14%) track benchmarks that encompass a larger bond universe compared with the iShares ETF.
Investors seeking to minimise country risk while maintaining exposure to this maturity segment of the eurozone bond market also have the choice of ETFs tracking indexes restricted to only top-rated issuers (for example, Germany).
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