While some market luminaries, such as bond guru Bill Gross, believe 2018 could call time on a 35-year bull run in global bonds, Ashburton Investments has gone to market with SA’s first world government bond exchange-traded fund (ETF).
The new ETF will track the Citi World Government Bond Index (WGBI), which invests in fixed-rate, local-currency, investment-grade sovereign bonds. That means local investors will not have to use offshore allocations or obtain tax clearance to buy global bonds, as has previously been the case. The ETF tracks 23 sovereigns, including emerging markets in Mexico, Poland and Malaysia.
Local government bonds account for 0.5% of the value of total holdings, although SA is still in danger of being booted from the WGBI should ratings agency Moody’s Investors Service cut the country‘s local currency ratings to junk. The biggest holdings in the ETF are US government bonds at 33.6%, followed by Japan at 19.7%, France at 8.4% and, curiously, Italy at 7.97%.
Samantha Schoeman, head of Index Tracking at Ashburton, said they had not tried to time the market and began compiling the ETF about 18 months ago.
"From a macro asset allocation view, guys are slightly more underweight [global bonds], but it doesn’t mean you’re not holding [them] in a diversified portfolio," she said.
Schoeman said the initial public offering raised R60m from investors. Ashburton would not say whether that was ahead or below target, but indicated that local investors did not seem to be using the strength of the rand to buy offshore assets.
"Although we thought that there would be a positive currency play, it was more to ensure that the fund is available for use when required. We do think it will be quite popular," said Schoeman.
Traditionally, buying bonds is the province of institutional investors or high net-worth individuals, given the outlay required. But Ashburton has tailored the ETF to retail investors, with a minimum subscription amount of R5,000 and increments of R1,000 thereafter.
There is no upper limit and the company says the total expense ratio will come in between 0.4% and 0.45%.