24 March 2020

  • The iBoxx iTraxx Europe Bond Index rolled on Friday 20 March
  • The index rolls twice a year in March and September, mirroring the roll of the iTraxx Europe CDS index
  • The roll increased the maturity, duration, yield and spread of both the index and the Tabula IG Bond UCITS ETF (TTRX), which tracks the index
  • It was a challenging trading environment, but it did not impede the roll
  • TTRX has performed well over the last 30 days relative to broad IG ETFs, outperforming during the recent volatility and delivering a smaller discount to NAV versus its peers.

iTraxx Europe Index Series 33 constituent changes

Additions   Removals  
Air Liquide Industrials ArcelorMittal Industrials
Linde Group Industrials Thales Group Industrials
GlaxoSmithKline Consumer Electrolux Consumer
Experian Finance Consumer Renault Consumer
Tesco Consumer Tate & Lyle Consumer
RELX TMT United Utilities Energy

Country Chart

Sector chart-1

Rating chart

Maturity chart-1

Key statistics

  iTraxx Europe Index (S32)

TTRX  (pre-roll)

  iTraxx Europe Index (S33)

TTRX  (post-roll)

Number of issuers 108 108   112 112
Number of bonds 261 232   269 228
Average maturity 4.76yrs 4.48yrs   5.25yrs 5.16yrs
Average duration 4.52yrs 4.45yrs   4.95yrs 4.90yrs
Estimated yield 1.61% 1.52%   1.61% 1.61%
Estimated spread 215bps 207bps   216bps 213bps

The index

The difference in the index composition between S32 and S33 has increased the number of bonds by eight.

There was a decrease in exposure to:

  • the banking sector which fell to 17.9% from 18.7%
  • basis resources which fell to 1.7% from 2.5%

There was an increase in exposure to:

  • media which rose to 7.2% from 5.6%
  • chemicals which rose to 5.4% from 4.7%

The fund

The Tabula iTraxx IG Bond UCITS ETF (TTRX) exhibited circa -6bps of tracking error due the wide bid-offers spreads (~70-90bps) throughout the course of the roll day.

We believe this was an excellent result in the face of almost unprecedented ongoing uncertainty, combined with multiple options expiries and a general lack of liquidity across virtually every asset since the start of the sell-off a month ago.

The ETF roll proved that for a well-constructed, focused corporate bond fund it was still possible to implement a significant index rebalance, representing almost 20% of the portfolio, with negligible performance impact.

  • Yield increased by 9bps
  • Duration extended by 0.45yrs
  • OAS increased by 6bps
  • Number of bonds held by the fund fell by four. The fund sold a number of short-dated bonds  that didn’t meet the benchmark criteria, in order to increase the duration and to fund the buying of new issues joining the index. The fund will work through inflows to increase the number of bonds to closer match the index
 
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