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PRESS ROOM

WisdomTree Launches Two New Smart Beta Fixed Income ETFs

Thursday 05th July '18


WisdomTree, the exchange traded fund ("ETF") and exchange traded product ("ETP") sponsor, today announced the launch of the WisdomTree EUR Government Bond Enhanced Yield UCITS ETF (WTDR) and the WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF (WTDP) on the Deutsche Börse Xetra.

The strategies seek to take a more intuitive approach to indexing by seeking to provide enhanced yields on core European investment grade bonds and treasuries, without potentially riskier exposures.

WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF aims to achieve both a higher yield and a low tracking error with respect to the market benchmark, the Bloomberg Barclays Euro Aggregate Bond Index, which measures the performance of the investment grade, Euro denominated, fixed rate bond market, including treasuries, government-rated, corporate and securitized bonds. The ETF does this by following a rules-based approach which tilts the weights of the market benchmark towards higher yielding segments of the market while controlling risk and tracking error vs the market benchmark. TER is 0.18%

WisdomTree EUR Government Bond Enhanced Yield UCITS ETF aims to achieve both a higher yield and a low tracking error with respect to the market benchmark, the Bloomberg Barclays Euro Treasury Bond Index, which measures the performance of the investment grade, Euro denominated, fixed rate government bonds issued by the sovereign countries participating in the EMU. The ETF does this by following a rules-based approach to tilt the weights of the market benchmark towards higher yielding segments of the market while controlling for risk and tracking error versus the market benchmark. TER is 0.16%

Rafi Aviav, WisdomTree Head of Product Development in Europe, said, “The new ETFs launched today are an important addition to the European fixed income fund landscape. The strategy employed by both funds offers a unique solution for investors to potentially increase the yield they’re getting from the market while tightly controlling risk. By tilting towards yield the strategy aims to deliver on one of the most important attributes for fixed income investors, while avoiding excessive tracking error and risk-taking with respect to the benchmark.”

Christopher Gannatti, WisdomTree Head of Research in Europe said, “Many fixed income investors today are faced with two broad options: actively managed strategies or exchange traded products that track market capitalisation-weighted indices. However, this often leads to investors lending more capital to the issuers that already hold the most debt. Here we take a ‘smart beta’ approach to fixed income. We have taken two existing universes of fixed income securities and applied an algorithmic approach to try to “squeeze” as much extra income out of these constituents as possible while remaining sensitive to tracking error constraints, bringing the potential for alpha.”

GOVE and YLD: Under the hood

The index methodology for each fund uses a 3-step process for yield optimisation and incorporates the following:

  • Step 1: Divide index constituents into buckets. The constituents are divided into buckets across either country and maturity (GOVE) or sector, country, maturity and credit quality (YLD).
  • Step 2: Determine and apply constraints. To control risk and concentration while limiting turnover, a number of constraints are added (see below).
  • Step 3: Determine bucket weights. Each month, weights of each Index are reallocated across the buckets to maximise yield while adhering to the constraints. The constraints are designed such that the resulting “enhanced yield” indices are managed against the risk of undue tracking error relative to the parent universes.
  • Constraints: Each month, weights of each Index are reallocated across the buckets to maximise yield while adhering to the constraints. The constraints are designed such that the resulting “enhanced yield” indices are managed against the risk of undue tracking error relative to the parent universes.
    • Tracking Error: Tracking Error Volatility for each enhanced yield index should be less than 35 basis points each month when measured against its respective parent index.
    • Duration: Duration of each Index cannot be more than 1 year greater than that of either the Euro Treasury or the Euro Agg parent indices.
    • Country and Bucket constraints and sector and subcomponent constraints are applied. For the Bloomberg Barclays Euro Treasury Enhanced Yield Index, country weights cannot deviate by more than 20% from their weight in the Euro Treasury Index whilst for the Bloomberg Barclays Euro Aggregate Enhanced Yield Index major sectors cannot deviate by more than 20% from their weight in the Euro Agg index.
    • Bucket Size: To be eligible for selection a buckets market value must meet minimum requirements.
    • Turnover: Portfolio turnover due to monthly rebalancing is capped at 5%.

Product Information:

 

Share Class Name Exchange Trading Currency Exchange Code ISIN
WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF – EUR Xetra EUR WTDP DE000A2JLJC9
WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF – EUR Acc Xetra EUR WTDQ DE000A2JLJD7
WisdomTree EUR Government Bond Enhanced Yield UCITS ETF – EUR Xetra EUR WTDR DE000A2JLJE5
WisdomTree EUR Government Bond Enhanced Yield UCITS ETF – EUR Acc Xetra EUR WTDS DE000A2JLJF2


Total Expense Ratio (TER):
A measure of the total costs associated with managing and operating a fund. The TER consists primarily of management fees plus other expenses such as trustee, custody and operating expenses. It is expressed as a percentage of the fund's total net asset value.

Interest Rate Risk: The risk that an investment’s value will decline due to an increase in interest rates.

Tracking error volatility: The volatility of the difference between the performance of a portfolio and its benchmark. In this case, the portfolio is the Euro Treasury Index.

Duration: A measure of a bond’s sensitivity to changes in interest rates. The weighted average accounts for the various durations of the bonds purchased as well as the proportion of the total government bond portfolio that they make up.

Rebalance: An index is created by applying a certain set of selection and weighting rules at a certain frequency.

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Notes to Editors

 

About WisdomTree Europe Ltd.

 

WisdomTree Investments, Inc., through its subsidiaries in the US, Europe and Japan (collectively, "WisdomTree"), is an exchange traded fund ("ETF") and exchange traded product ("ETP") sponsor. WisdomTree offers products covering equities, fixed income, currencies, commodities and alternative strategies. Through WisdomTree UK Limited, it sponsors WisdomTree UCITS ETFs and ETPs from ETF Securities and Boost, in a wide range of asset classes, including short and leverage ETPs. WisdomTree currently has approximately $64.1 billion (as of 11 May 2018) in assets under management globally. For more information, please visit www.wisdomtree.com.

WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.

 

Disclaimer

 

The content on this document is issued by WisdomTree UK Ltd (“WTUK”), which is authorised and regulated by the Financial Conduct Authority (“FCA”). Our Conflicts of Interest Policy and Inventory are available on request.

 

For professional clients only. Past performance is not a reliable indicator of future performance. Any historical performance included on this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested performance is purely hypothetical and is provided on this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. The value of any investment may be affected by exchange rate movements. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice. These products may not be available in your market or suitable for you. The content of this document does not constitute investment advice nor an offer for sale nor a solicitation of an offer to buy any product or make any investment.

 

An investment in ETPs is dependent on the performance of the underlying index, less costs, but it is not expected to match that performance precisely. ETPs involve numerous risks including among others, general market risks relating to the relevant underlying index, credit risks on the provider of index swaps utilised in the ETP, exchange rate risks, interest rate risks, inflationary risks, liquidity risks and legal and regulatory risks.

 

The information contained on this document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, where none of the Issuers or their products are authorised or registered for distribution and where no prospectus of any of the Issuers has been filed with any securities commission or regulatory authority. No document or information on this document should be taken, transmitted or distributed (directly or indirectly) into the United States. None of the Issuers, nor any securities issued by them, have been or will be registered under the United States Securities Act of 1933 or the Investment Company Act of 1940 or qualified under any applicable state securities statutes.

 

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The distribution of shares of WisdomTree Issuer Plc sub-funds (the “Funds”) in Switzerland which have been registered with the Swiss Financial Market Supervisory Authority (FINMA) will be made to, and directed at, qualified investors. The Funds which have not been registered with the FINMA will be marketed exclusively to regulated qualified investors. The Representative and Paying Agent in Switzerland is Société Générale Paris, Zurich Branch, Talacker 50, PO Box 5070, 8021 Zurich, Switzerland. The prospectus, the key investor information documents (KIID), the Articles and the annual and semi-annual reports are available free of charge from the office of the Swiss Representative and Paying Agent.

 

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This document does not constitute or form part of any offer or invitation to the public to subscribe for or purchase shares in the Fund and shall not be construed as such and no person other than the person to whom this document has been addressed or delivered shall be eligible to subscribe for or purchase shares in the Fund. Shares in the Fund will not in any event be marketed to the public in Malta without the prior authorisation of the Maltese Financial Services Authority.

 

For Investors in France:

 

The information in this document is intended exclusively for professional investors (as defined under the MiFID) investing for their own account and this material may not in any way be distributed to the public. The distribution of the Prospectus and the offering, sale and delivery of Shares in other jurisdictions may be restricted by law. The Issuer is a UCITS governed by Irish legislation, and approved by the Financial Regulatory as UCITS compliant with European regulations although may not have to comply with the same rules as those applicable to a similar product approved in France. The Fund has been registered for marketing in France by the Authority Financial Markets (Autorité des Marchés Financiers) and may be distributed to investors in France. Copies of all documents (i.e. the Prospectus, the Key Investor Information Document, any supplements or addenda thereto, the latest annual reports and the memorandum of incorporation and articles of association) are available in France, free of charge at the French centralizing agent, Societe Generale at 29, Boulevard Haussmann, 75009, Paris, France. Any subscription for Shares of the Fund will be made on the basis of the terms of the prospectus and any supplements or addenda thereto.

 

Index Disclaimer

 

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays is affiliated with WisdomTree Investments Inc, and neither approves, endorses, reviews or recommends the WisdomTree EUR Aggregate Bond Enhanced Yield UCITS ETF or the WisdomTree EUR Government Bond Enhanced Yield UCITS ETF (the “Funds”). Neither Bloomberg nor Barclays guarantees the timeliness, accurateness or completeness of any data or information relating to the Bloomberg Barclays Euro Aggregate Enhanced Yield Index or the Bloomberg Barclays Euro Treasury Enhanced Yield Index (the “Enhanced Yield Indices”), and neither shall be liable in any way to WisdomTree Issuer PLC, investors in the Funds or other third parties in respect of the use or accuracy of the Enhanced Yield Indices or any data included therein.