Tabula debuts Europe’s first Gulf government bond ETF

Tabula Investment Management has unveiled the first fixed income ETF in Europe to target government bonds issued by the Middle Eastern member states of the Gulf Cooperation Council (GCC).

The Tabula GCC Sovereign USD Bonds UCITS ETF (TGCC LN) has been listed on London Stock Exchange in US dollars, coming to market with $30 million in initial 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.

Until now, European ETF investors could only access the Middle East bond market via broad emerging markets or global ETFs. TGCC seeks to address those challenges, supporting more granular asset allocation decisions by investors.

Commenting on the new launch, Michael John Lytle, CEO of Tabula Investment Management, said: “With recession fears and continued economic uncertainty remaining a predominant global concern, investors may now find it an auspicious time to reassess asset allocation decisions, with a view to increasing diversification across regions and instrument types. Sovereign bonds issued by GCC countries have historically exhibited a superior Sharpe ratio when compared to broad emerging markets and still offer high income. As the GCC region undertakes numerous initiatives to diversify revenue streams away from oil and gas, a more granular allocation to the region could play a significant role in building more defensive portfolios.”

Jason Smith, CIO of Tabula Investment Management, added: “The GCC includes some of the highest growth economies globally. These countries have been implementing economic and fiscal reforms in recent years, leading to an improvement in their creditworthiness. In addition, they have large reserves of foreign currency which helps maintain stable economic growth and makes their bonds relatively lower risk compared to other emerging markets.”

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 10 January, the index contained 88 bonds with a yield to maturity of 5.13% and an effective duration of 7.78 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 (47.7%) and A (27.5%) being the most notable credit bucket exposures. The remaining index weight was assigned to bonds rated BB (14.2%) and B (10.6%).

The ETF comes with an expense ratio of 0.45%. Income is accumulated within the portfolio.