GERMANY - Europe’s first exchange traded fund, or ETF, tracking a fixed income index has been launched by Munich-based Indexchange.

The ETF replicates the eb.rexx Government Germany index which covers the 25 largest and most liquid German government bonds.

The fund started trading this week in the XTF segment of the Deutsche Boerse and trades continuously on the XETRA electronic platform. The bonds making up the index are traded on the Eurex Bonds platform, where 14 market makers price the bonds.

Sponsors of the ETF will provide “superior liquidity and a fair pricing” by constantly quoting bid and ask prices as supplied on the same basis as equity based ETFs, says Indexchange.

The initial sponsor is HypoVereinsbank, but more sponsors are expected in the coming month, says Andreas Fehrenbach, chief executive of Indexchange.

The aim, he says is to provide investors with a similar ETF product on the fixed income side to those available on the equity side. “Our expectations are that the ETF could reach one billion euros in assets over 12 months.”

With a total expense ratio, including annual management fee of 0.15% pa, the ETF provides “a very cost efficient way” of investing in German government bonds, says the promoter.

While there is no initial fee within the ETF, the brokers through whom it is purchased can impose their charge, which could be in line with an equity ETF or a bond.

Morgan Stanley’s Deborah Fuhr, who monitors the ETF market closely, says: “We saw the first fixed income ETFs launched in the US in July and have assets of four billion dollars. We are now seeing a demand for this product in Europe.” Barclays Global Investors is looking to introduce such an ETF in its iBoxx range, she adds.

Indexchange, which is a subsidiary of HypoVereinsbank, claims to be market leader, with some 80 million euros being traded each day in its ETFs. It has a total of 2.35 billion euros in ETFs, the biggest being the DAX EX with assets of 1.01 billion euros. It says it has a 24% market share in ETF assets under management.

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