Tabula Investment Management has today (7 July) launched Europe’s only ETF to offer short exposure to North American high yield credit.
The Tabula North American CDX High Yield Credit Short UCITS ETF (TABS) seeks to offer liquid exposure to the CDX North American High Yield Credit Short index, which was developed jointly by Tabula and IHS Markit.
Providing exposure to around 100 "sub-investment entities of equal weighting", the index utilises credit derivatives to offer "high yield credit risk without exposure to the interest rate risk inherent in high yield bonds" without ISDAs.
TABS seeks to directly replicate the index composition, which is rebalanced monthly and produces a new ‘on-the-run' series biannually, the current version of which has had six defaults, leaving the series with 94 issuers.
Michael John Lytle, Tabula CEO, said: "This is a very opportune time to launch an ETF that enables investors to hedge against the North American high yield corporate credit market.
"Defaults have been rising and downgrades have accelerated sharply this year. We are also seeing an increase in the number of ‘fallen angels' - companies that have their debt rating reduced to high yield status due to their deteriorating financial position - and this too could lead to further uncertainty."
Jason Smith, Tabula CIO, added: "Financial market indicators are optimistic relative to both credit and economic indicators. Defaults in North American corporate credit are at the highest rate for 11 years and predictions from leading rating agencies estimate they could increase to between 5% and 15.5% by March 2021.
"Investors need to review their exposure to high yield US debt and consider strategies for protecting against any rise in defaults."
Lida Eslami, head of business development, ETP, London Stock Exchange described the ETF as a "timely" solution in an area that has seen "significant growth in trading volumes" over H1 2020.
TABS is listed on the London Stock Exchange with a total expense ratio of 0.5%.