Tabula brings out high yield ETF for credit hedging

European fixed income manager Tabula Investment Management has launched an exchange-traded fund (ETF), the New European Credit UCITS ETF, for investors looking to hedge their exposure to high yield credit.

The ETF acts as a liquid instrument to hedge against the iTraxx Crossover CDS Index of 75 sub-investment grade names. Tabula said that the ETF gives investors the ability to buy protection against widening spreads, by creating a short position, with minimal interest rate risk. It does this by holding credit default swaps on the European iTraxx Crossover index.

Tabula chief executive officer, Michael John Lytle, commented: “CDI indices were previously only available to a small group of specialised institutional investors. We are making them available in a transparent UCITS ETF, which extends the tool kit for fixed income investors to efficiently manoeuvre in difficult market environments.” He added that using the highly liquid CDS index was a much easier and cheaper way to go short on a high yield position than borrowing an ETF, selling it, paying a lending fee, then unwinding the transaction to close that position.

Lytle said that by using monthly, rather than daily, rebalancing was a better approach for institutional investors. The ETF has a 0.5% fee and is available in a number of European countries including the UK.