AT1 ETF

Today sees the launch of the first dedicated Additional Tier 1 Exchange Traded Fund. As first mover, Invesco Powershares gets to claim the simplest ticker, AT1 LN.

The fund launches with $50mm of investment and has an ongoing charge of 39bps, and no performance fees.

We see this as a natural development of the AT1 space as the sector has grown substantially since its birth, 5 years ago, to a market cap of around $200bn today. The fact that most issues are large liquid benchmarks, makes them ideal for ETF creation. The sector is also reasonably concentrated with just 162 different issues; again making it simpler to replicate.

We welcome the addition of an ETF into this area as it should add further liquidity to this important sector, as well as helping to create a more diverse investor base.  However, we do appreciate that dedicated funds may not agree with our comment, as beating the ETF will not be easy due to the already small number of issuers, and also the lower fee structure that the ETF offers.

We expect AT1 LN to attract substantial interest in the fullness of time. We also expect that it will attract some fast money as well as being a vehicle for “shorting” the sector, so the downside of this development may be some additional volatility.