New ETF group FinEx offers Russian Corporate bond ETF

FinEx ETF Ltd, part of the FinEx international asset management group, has entered the European exchange traded fund (ETF) market with the launch of the FinEx Tradable Russian Corporate Bonds UCITS ETF on the London Stock Exchange.

The ETF will track the Barclays EM Tradable Russian Corporate Bond (EMRUS) Index, which focuses on shorter maturity liquid Eurobonds issued by Russian non-sovereign issuers.

The Index was launched in December 2012 but back-testing of its constituent securities on an unhedged US dollar basis shows that it delivered a total net return of 8.17% over one year to 15th February 2013. It also returned a net 46.29% from a calculation inception date of 1st June 2009 to 15th February 2013.

The fund’s promoter FinEx Capital plans to cross-list the fund on other major stock exchanges in Europe, and to become a market leader in emerging markets, where in many cases ETFs are not listed. The new ETF is set for a listing on the Moscow Exchange MICEX-RTS shortly, the first ETF to list in Russia.

FinEx ETF said it expects strong growth in the global ETF market for the next few years and believes this will increasingly come from emerging markets, partly driven by support from European institutional investors. In house research indicates 44% expect to increase investment in ETFs in the next year, and that rises to 46% for the next three years.

FinEx Capital Management managing partner and chief executive officer Simon Luhr said it is an exciting time to be launching a new ETF proposition. “We believe that ESMA has addressed many of the criticisms aimed at ETFs, for example in terms of transparency, and our UCITS offering will aim to comply with all of the recent recommendations made by it.”

“Although the global ETF market has enjoyed phenomenal growth in recent years it has yet to take off in many Emerging Markets. They are a new frontier to which we can take our very strong proposition,” added Luhr, a former deputy chairman of the London Stock Exchange’s Stock Borrowing Committee and former founding member of the Bank of England’s Stock Borrowing and Repo Committee.

Deborah Fuhr, Partner at independent research and consultancy firm ETFGI, said the new firm was “far from another ‘me too’ entry into what some commentators might say is a highly competitive ETF market”. “FinEx has a fresh take…with its strategy to act as a bridge, bringing Western style products to Emerging Markets while offering Western investors access to emerging economies. It is an area of the market that offers great potential.”

In research conducted by FinEx ETF, 65% of repondents said they invest in high yield debt, with 54% invested in Emerging Market High Yield debt; 72% believe institutional investors will increase their exposure to EM corporate debt over the next 12 months .

When looking at the next five years, 35% of those interviewed expect institutional investors to increase their exposure to Russian corporate debt, while 5% expect a ‘significant increase’ and 30% a ‘slight increase.’

The low interest rates prompted by monetary easing in the US and Europe have encouraged investors to seek higher returns, which in turn has spurred an upsurge of flows into EM bonds. In Russia, improving corporate governance and financial reforms are underpinning investor interest.

The weekly average flow of EM bond ETFs has increased by around 39% over the past five years, FinEx said. While there is around $19bn in EM bond ETFs versus more than $159bn held in comparative mutual funds, the higher growth rates in ETF assets under management should lead to ETFs playing an increasingly important role in the sector, the firm added.

ETFs have been gaining support among investors because of their efficiency, liquidity, diversification and transparency. Assets invested in the sector in Europe reached an all-time high of $389bn at the end of January 2013, according to ETFGI.

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