A covered bond is a type of corporate bond which is secured by a pool of financial assets. Usually issued by financial institutions outside of the US, covered bonds allow investors, if the originator of the bonds becomes insolvent, to claim against both the issuer of the bonds and a pool of assets which back the bond, commonly known as the cover pool. As it therefore lowers the risk of a total loss in case of a default, covered bonds are usually considered to be high quality investments.
While there are only a few AAA-rated corporate bonds in the US, the global market for such bonds is quite large, evaluated at USD 3 trillion outstanding. The Solactive Diversified USD Covered Bond Index’ objective is to provide exposure to a diversified pool of USD denominated international bonds that offer high credit quality and attractive yield potential.
Steffen Scheuble, CEO, Solactive, said: “We’re delighted to have a good start into the new year, with one more ETF tied to an index we calculate.” He added: “We want to keep offering new, innovative solutions to our clients in 2014. And the Solactive Diversified USD Covered Bond Index is clearly unique in the market as it is currently the only one offering exposure to USD denominated AAA rated covered bonds globally.”
As of 15th January 2013, the index had 54 constituents. The country breakdown was as follows: 43% Canada, 18% Australia, 13% Norway, 9% Sweden, 6% United Kingdom, 11% for Switzerland, France, Netherlands and Germany.