Providing Clarity on Fixed Income ETFs
Whenever I see new providers launch into the ETF space, the first thing we look to do is investigate the data files underlying the product, for basic information such as , TER, AUM share class ccy, constituents and derivatives. These you would have imagined would have become standardised and basic components for an industry that is now measured in trillions.
Unfortunately not, the less I mention some providers implementation of currency forwards the better, some are misleading at best, if not inherently incorrect. To give credit where it is due iShares has made a step in the right direction with the release of their FDF file format globally, this is a very clear file showing explicit baskets for pricing, deliverable and excluded assets, unfortunately this only covers equities.
This brings us onto the elephant in the room for ETFS, the universe for Fixed Income ETFs has grown substantially, if you look at AGG ( iShares core US AGG Bond ETF) it has in excess of eighty five billion dollars of assests, but the underlying data that supports this ETF and other ETFs like it are substandard, to the extent that this volume of assets should not be embedded in the funds without investors asking serious questions.
Many ETF providers supply for their Fixed Income products supply merely, Nav, Shares Outstanding, Constituent level ISIN and number of bonds and that is it. This is without going into the vagaries of the creation / redemption process, the pricing of the ETF can be described at best as an art rather than a science, and as we are missing information such as pricing methodology, coupon , clean or dirty prices, the art is a surrealist interpretation.
Thus in working with our clients, ULTUMUS has created FIRE , Fixed Income Reference Enhanced, this is designed to allow ETF traders slightly more visibility in the products that underlie the ETF, capturing information such as , LEI of ISSUER, ISSUE CCY, maturity date, principal factor and sector.