European fixed income ETF provider Tabula Investment Management Limited has re-engineered its European Performance Credit ETF hoping to provide investors with attractive yields, without having to increase their credit risk.

The ETF now tracks the iTraxx European IG Performance Credit Index from IHS Markit, which provides exposure to European Investment Grade corporate credit. To emphasise credit risk and reduce direct interest rate risk, it takes exposure via a liquid credit default swap (CDS) index rather than individual corporate bonds. The ETF has a current duration of 0.43 and an annual net yield of 2.3 percent.

Before the change, the index was 3x leveraged and provided 80 percent exposure to European Investment Grade credit, and 20 percent exposure to European High Yield Credit. It is now 4x levered and provides 100 percent exposure to European Investment Grade credit only, with no exposure to European High Yield Credit.

“Opportunities that provide real yield are becoming harder to source, with many investors having to take on more risk or increased duration to maintain attractive yields”, says Tabula CEO, Michael John Lytle. “With that in mind, we have re-engineered our European Performance Credit ETF (TCEP) to ensure investors can continue to receive an attractive yield but without additional credit risk.”

The Tabula European IG Performance Credit UCITS ETF – Acc. (TCEP) aims to directly replicate its index composition via CDS index positions and cash collateral. To minimise counterparty risk, CDS index trades are executed through regulated brokers and centrally cleared.