UniCredit and Axiom AI launch first global CoCo bond ETF

UniCredit and Axiom Alternative Investments have announced the launch of the UC AXI Global CoCo Bonds UCITS ETF, the first global exchange-traded fund (ETF) to provide market weighted exposure to the contingent convertible (CoCo) bond market. The ETF will be listed on Deutsche Börse Xetra under ticker CCNV.

The UC AXI Global CoCo Bonds UCITS ETF (ISIN: LU1873136789) is the first ETF to provide investors with access to the entire liquid CoCo bond market, including Additional Tier 1 (AT1)* and Restricted Tier 1 (RT1)* capital instruments. The ETF will track the performance of the EURO-hedged Solactive AXI Liquid Contingent Capital Global Market TR Index (Bloomberg ticker: SOLAXICC), the first index to provide a currency hedged market-weighted exposure to the global CoCo Bond market

SOLAXICC has been designed to offer the most scalable and liquid exposure to the CoCo bond universe. It is the largest CoCo index in the market by capitalisation (EUR 141bn) reflecting the performance of EUR and USD denominated AT1* and RT1* bonds (123 bonds).

Contingent convertible instruments are widely viewed as an alternative investment opportunity to high yield corporate bonds and bank stocks, as they typically offer higher yields alongside a better credit profile (AT1 EUR-denominated bonds are rated on average BB, while the average rating for HY corporate bonds is BB-).

The UC AXI Global CoCo Bonds UCITS ETF has been developed and launched in cooperation with Axiom Alternative Investments – an independent asset manager which specialises in instruments issued by financial institutions, with a strong track record in managing funds exposed to the financial sector.

Laurent Dupeyron, Managing Director, UniCredit, said: 

Today’s announcement is a major development for our institutional investor base who can now gain market-weighted exposure to the CoCo universe in an easy and cost-effective manner while still benefiting from a UCITS structure. With this launch, we are proving once again that we can respond flexibly to market developments and the demands of our clients.

David Benamou, Founder and Chief Investment Officer of Axiom AI added:

“We are delighted to launch the first global CoCo bond ETF in partnership with UniCredit. We see the current market environment as very attractive for a number of reasons. With the latest bank stress tests showing capital levels in excess of 3% above the conversion trigger, coupled with the current upgrade momentum for European banks by rating agencies, these developments represent very positive signals for the asset class moving forward.”

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*Additional Tier 1 and Restricted Tier 1 bonds are a new deeply subordinated debt format eligible for regulatory capital requirements/purposes under Basel 3 and Solvency 2.

The instruments are designed to absorb losses in two ways: the first is via partial or complete suspension of coupon payment at the discretion of the issuer and the second is via either a (full or partial/temporary or permanent) principal write down or a (full or partial) conversion of the nominal amount into equity of the institution. The latter is triggered by a so-called quantitative capital trigger event with a predetermined regulatory capital ratio.