Core & Innovation: invest in the new possible
ETFs can offer convenient access to broad and diversified baskets of bonds at a low cost. Discover our range of fixed income ETFs.
Introducing our innovative income ETFs
You can find higher yields without looking at traditional high yield markets
Higher yields without low credit quality
Investors wanting higher yields than they could get from government or investment grade corporate bonds would normally have to invest in companies with lower credit ratings. Less financially secure companies must pay higher coupons to compensate bond investors for the additional risk they’d be taking, i.e., the risk of the issuer being unable to pay the coupons or the principal. While this trade-off is agreeable for some investors, others are unable to accept this higher default risk.
Fortunately, more innovative solutions are now available. While they are not without risk, they can offer investors the potential for higher yields without having to necessarily accept lower credit quality or greater interest-rate risk. These securities are often from investment-grade issuers, with the higher coupons due to their subordination and other features, not the company’s credit rating.
Contingent convertible bonds (AT1s)
A new type of security was created as a result of the global financial crisis, to act as a buffer in the case of another financial stress event. Contingent convertible bonds, also known as “CoCos” or Additional Tier 1 (AT1) capital bonds, are issued by European banks. Because of a mechanism that converts the bonds to common equity if the bank’s capital falls below a regulatory threshold, their yields can be materially higher than the senior debt from the same issuer and, indeed, can often compete with yields from sub-investment-grade issuers.
The Invesco AT1 Capital Bond UCITS ETF seeks to track the iBoxx USD Contingent Convertible Liquid Developed Market AT1 (8% Issuer Cap), an index of USD-denominated AT1 securities issued by European banks and financial institutions. The index has been customised to screen out any issuers involved in certain business practices while maintaining investibility and liquidity standards.
Investment risks
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For complete information on risks, refer to the legal documents.
The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested. The creditworthiness of the debt the Fund is exposed to may weaken and result in fluctuations in the value of the Fund. There is no guarantee the issuers of debt will repay the interest and capital on the redemption date. The risk is higher when the Fund is exposed to high yield debt securities. The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults. Changes in interest rates will result in fluctuations in the value of the fund.
This fund invests in contingent convertible bonds, a type of corporate debt security that may be converted into equity or forced to suffer a write down of principal upon the occurrence of a pre-determined event. If this occurs, the Fund could suffer losses. Other notable risks of these bonds include liquidity and default risk. The Fund might be concentrated in a specific region or sector or be exposed to a limited number of positions, which might result in greater fluctuations in the value of the Fund than for a fund that is more diversified. Currency hedging between the base currency of the Fund and the currency of the share class may not completely eliminate the currency risk between those two currencies and may affect the performance of the share class.
Euro Corporate Hybrid Bonds
Corporate hybrid bonds are similar to AT1s in many ways, including often being issued by companies with strong balance sheets and investment-grade credit ratings. The most obvious difference is that AT1s are only issued by financial institutions whereas corporate hybrids are issued by utilities, telecoms and companies in other non-financial sectors. Corporate hybrids can be appealing for the issuing company because credit rating agencies treat them as part debt/part equity, meaning they can support the issuer’s credit metrics. Meanwhile, corporate hybrids are subordinate to the senior debt from the same issuer, which explains the higher yields offered.
The Invesco Euro Corporate Hybrid Bond UCITS ETF seeks to tracks the Bloomberg Euro Universal Corporate ex Financials Hybrid Capital Securities 8% Capped Bond Index, an index of EUR-denominated, fixed-rate hybrid securities, with constraints in place to improve the tradability and credit quality of the index.
Investment risks
-
For complete information on risks, refer to the legal documents.
The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested. The creditworthiness of the debt the Fund is exposed to may weaken and result in fluctuations in the value of the Fund. There is no guarantee the issuers of debt will repay the interest and capital on the redemption date. The risk is higher when the Fund is exposed to high yield debt securities. The Fund may be exposed to the risk of the borrower defaulting on its obligation to return the securities at the end of the loan period and of being unable to sell the collateral provided to it if the borrower defaults. Changes in interest rates will result in fluctuations in the value of the fund.
Why Invesco ETFs?
Both Invesco ETFs aim to track the performance of an index through passive, physical replication. This means the ETFs will hold as far as is possible and practical all the securities in the index in their respective weightings and rebalance the holdings whenever the index is rebalanced.
Invesco’s team of portfolio managers are responsible for the efficient buying and selling of the ETF’s bonds, and the rebalancing of the portfolio, while our dedicated capital markets team works closely with leading brokers and market-makers who facilitate the efficient trading of our ETFs.
The full list of ETF holdings and index constituents are published daily on the Invesco ETF website.
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Notes
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An investment in this fund is an acquisition of units in a passively managed, index tracking fund rather than in the underlying assets owned by the fund.
Important information
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Data as at 30 December 2022, unless otherwise stated.
By accepting this presentation, you consent to communicating with us in English, unless you inform us otherwise.
For more information on our funds and the relevant risks, please refer to the share class-specific Key Information Documents/Key Investor Information Documents (available in local language), the Annual or Interim Reports, the Prospectus, and constituent documents, available from www.invesco.eu. A summary of investor rights is available in English from www.invescomanagementcompany.ie. The management company may terminate marketing arrangements.
This presentation is marketing material and is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
This presentation should not be considered financial advice. Persons interested in acquiring the fund should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences.
UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.
The iBoxx USD Contingent Convertible Liquid Developed Market AT1 (8% Issuer Cap) referenced herein is the property of Markit Indices Limited and is used under license. The funds or securities referred to herein are not sponsored, endorsed, or promoted by Markit Indices Limited.
“Bloomberg®” and the Bloomberg Euro Universal Corporate ex Financials Hybrid Capital Securities 8% Capped Bond Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Invesco. Bloomberg is not affiliated with Invesco, and Bloomberg does not approve, endorse, review, or recommend the Invesco Euro Corporate Hybrid Bond UCITS ETF. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the Invesco Euro Corporate Hybrid Bond UCITS ETF.
For the full objectives and investment policy please consult the current prospectus.
