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Source adds to active ETF sector

Source and Ashmore have launched active ETFs that invest in emerging markets bonds
October 8, 2014

Source and emerging markets asset manager Ashmore have launched two active exchange traded funds (ETFs) which focus on emerging market bonds. Ashmore SICAV Emerging Markets Total Return Fund - Ashmore Source UCITS ETF (ATRF) has a fee of 1.1 per cent and Ashmore SICAV Emerging Markets Corporate Debt Fund - Ashmore Source UCITS ETF (ACDF) has a fee of 1.15 per cent.

The ETFs are share classes of the open-ended Ashmore SICAV (Luxembourg fund), and their shares will be denominated in US dollars. There are not many active ETFs listed in London, with less than 10 prior to the launch of these funds.

Read more on active ETFs

Source says the benefits of accessing these funds via their ETF are the ability to trade them all day, and increased transparency as investors will be able to see all the funds' holdings with a three week delay. The ETFs' charges are the same as on the open-ended funds' institutional share classes which require very high minimum investments of several hundred thousand pounds or more. The retail share classes on the open-ended funds with a lower minimum entry level have much higher charges.

But the ETFs do not pay dividends.

Ashmore SICAV Emerging Markets Total Return Fund (LU0934558783) allocates between emerging market corporate bonds, sovereign local currency and US dollar denominated debt, aiming to take advantage of opportunities throughout the market cycle. Ashmore SICAV Emerging Markets Corporate Debt Fund (LU0860715415) focuses on corporate bonds with attractive spreads relative to developed market corporates. The funds buy the shares they invest in.

The US dollar institutional share classes of the existing open-ended funds have underperformed their benchmarks over one year and since inception according to Ashmore's fact sheets. They have also underperformed their Morningstar sectors over six months and one year.

Lyxor also offers an active emerging markets bond ETF: Lyxor ETF Emerging Markets Local Currency Bond (EMBD), which has an ongoing charge of 0.55 per cent. The fund aims to track the performance of local currency bonds while maintaining an adequate investment structure according to liquidity criteria. It was only launched last year and over one year to 7 October it has underperformed its index by 1.43, according to Morningstar. It has a 12-month yield of 7.08 per cent and pays dividends twice a year.