By George Devo
BlackRock has announced the launch of the first actively managed ETF in Europe which provides access to Additional Tier 1 (AT1) bonds.
The iShares AT1 Bond Active UCITS ETF (BAT1) is the latest effort by the world’s largest ETF brand to attract investors seeking to differentiate their income and diversify risk.
AT1 bonds are issued by banks to meet regulatory capital requirements. They offer comparable returns to high yield credit and low correlation to traditional fixed income fluctuations.
Sitting below senior and Tier 2 debt in the capital structure, they are structured to absorb losses during periods of financial stress and offer exposure to a segment not included in standard benchmarks.
See also: As Australia phases out AT1s, what does the future hold for the wider market?
BAT1 charges a total expense ratio of 0.5%.
“AT1s have become a meaningful part of Europe’s fixed income landscape, offering attractive income potential alongside diversification benefits,” said Jose Aguilar, lead portfolio manager and EMEA head of European high yield and long short credit strategies at BlackRock.
“Our research-intensive, risk-driven approach aims to capture this elevated income while remaining focused on alpha opportunities and capital preservation.”
Vasiliki Pachatouridi, BlackRock’s head of iShares fixed income product strategy EMEA, added: “By combining active management with the efficiency of the ETF wrapper, we’re opening the door for investors to access a segment of fixed income that has been historically difficult to reach.”
Introduced in 2013, AT1s have since seen significant growth, with the market now exceeding $300bn in outstanding issuance.
