BNP Paribas Asset Management (‘BNPP AM’) announced this week the listing of 3 fixed maturity ETFs on Euronext Paris and Xetra (with Borsa Italiana next week) as well as the launch of 2 fixed maturity active funds in May this year.
Fixed Maturity Plans (‘FMPs’) are diversified portfolios composed of bonds with similar maturity dates and possibly other debt securities. They are designed to provide investors visibility on the estimated yield to maturity. The portfolio typically has a short to medium-term maturity such as three or five years, depending on the investment horizon.
Common features across BNPP AM’s active and passive fixed maturity funds are:
- Expose an actively or passively managed portfolio to numerous bonds with similar maturity dates ensuring diversification across issuers, sectors, ratings, and yield to maturity
- Follow the life cycle of a single bond, provide regular interest payment and distribute the final payout at maturity
- Daily liquidity
- Integration of BNPP AM’s ESG [1] methodology with an SI[2] commitment ≥ 30%
- EU SFDR[3] Article 8.
Pieter Oyens, Global Head of Marketing at BNP Paribas Asset Management:
“With interest rates at their current levels, investors are looking for ways to lock in those rates. Fixed Maturity Products (“FMP”) can be an excellent way to do this as they give access to a diversified portfolio of bonds which are maturing at a similar point in time and before the product's maturity date. Through FMPs they also enjoy regular income and a predictable total return, assuming they stay until maturity and subject to any credit events.”
Characteristics of BNPP AM’s 3 fixed maturity ETFs[4] in the Active Beta fixed income range:
- Three maturity dates available: December 2027, December 2029 and December 2032
- Euro-denominated investment-grade (IG) bonds
- Tradeable throughout the day just like any ETF until maturity
- Positions in individual issuers capped at 3% each; final year using uncapped government bond exposure for cash management
- Benchmarks: Bloomberg Euro Corporate indices with December 2027/2029/2032 maturity dates
- Replication method: physical, with no securities lending.
Lorraine Sereyjol-Garros, Global Head of ETF and Index Solutions Business Development:
“This new generation of fixed maturity ETFs should meet specific market demands for sustainable, diversified, liquid and transparent investment solutions with predictable outcomes. Fixed Maturity ETFs can help mitigate reinvestment risk since investors know the duration of their investment and can plan accordingly. Offering a new investment solution that combines fixed maturity with sustainability and low Tracking Error can differentiate this new range of ETFs from traditional options, potentially attracting both retail and institutional clients. It is the perfect complement to the existing range that answers our clients’ needs on sustainable investments, including on Fixed Income”.
Characteristics of BNPP AM’s fixed maturity active funds:
- The first two funds of BNPP AM active FMPs
- Two maturity dates available: June 2027, June 2029
- Euro aggregate bond universe (during investment period):
- Active management to seize opportunities for additional spread and manage downside risks using fixed and floating rate bonds and active allocations in different sectors, geography, issuers, etc.
- Diversification within a single portfolio (around 100 securities each)
- Minimum 75% IG / maximum 25% in high-yield (HY)[5]
- Developed markets – only OECD countries (no emerging markets)
- Only euro-denominated instruments
- No securities with maturities longer than the fund’s maturity date + 6 months.
- Daily NAV (net asset value) to buy or sell: a distinctive feature of this generation of active FMPs: investors can buy (and sell) any day, up to six months before maturity. The fund applies swing pricing.
- Portfolio to be monitored against the closest OAT[6], hence offering yield visibility at anytime.
- A minimum 10% will be invested in green, social and sustainable bonds.
Peter Benschop, Euro Bond Fund Manager:
“Our new generation Fixed Maturity Plans aim to capture yield, to protect the investor from downside risks, and to generate incremental returns by actively managing the funds. The current rate environment is very favourable for investors seeking to lock in attractive yields for the next few years. With these new products, we offer a solution to achieve this in a risk-controlled manner. Credit selection and monitoring is key to avoid exposure to potential negative credit events. That is why fundamental credit research forms the basis of our rigorous investment process. Another plus of the new generation FMPs is the added flexibility of active management. It enables us to seize opportunities for additional return and to adjust the overall risk level of the funds in changing market conditions.”
Footnotes
- ^[1] ESG: using environment, social governance selection criteria. ESG assessments are based on BNPP AM's proprietary methodology which integrates all three aspects of E, S & G
- ^[2] SI: Sustainability Investments compliant with the proprietary sustainability framework developed by our Sustainability Centre
- ^[3] Sustainable Finance Disclosures Regulation
- ^[4] ETF: Exchange-Traded Fund
- ^[5] IG: Investment-Grade, HY: High-Yield (minimum rating BB- at purchase/minimum rating B-/average rating BBB category). No leverage.
- ^[6] OAT ( “Obligations Assimilables du Trésor”) are medium & long-term bonds issued by the French state. https://tinyurl.com/3h9dja3h
