Invesco AT1 Capital Bond UCITS ETF

Issuer: Invesco

Asset Class: Fixed Income

TER: 39bps

Trading Currency: USD

Pays Income: False

Listing Date: 25 Jun 2018

Ticker: AT1

ISIN: IE00BFZPF322

This fund provides targeted exposure to the global market for Additional Tier 1 (AT1) Contingent Convertible (CoCo) bonds. These are hybrid debt instruments issued predominantly by financial institutions, primarily banks, to meet regulatory capital requirements. They are designed to absorb losses during periods of financial stress, sitting lower in the capital structure than senior debt but higher than equity. In exchange for this higher risk, which includes potential coupon suspension or principal write-down under certain conditions, AT1 bonds typically offer significantly higher yields than more traditional corporate or government bonds, making them attractive in a search-for-yield environment.

The primary appeal for investors is the potential for a high income stream. This product offers a convenient and diversified way to access this specialised asset class, holding a portfolio of bonds from various issuers across developed markets, which helps to mitigate single-issuer credit risk. However, investors must be acutely aware of the associated risks. CoCo bonds can be volatile and are sensitive to both issuer-specific news and broader market sentiment regarding the health of the banking sector. The unique trigger mechanisms that can lead to loss absorption are a key feature that differentiates them from standard bonds and requires careful consideration.

This investment is best suited for more sophisticated investors who have a higher tolerance for risk and a thorough understanding of complex fixed-income instruments. It could serve as a yield-enhancing component within a diversified portfolio for those with a long-term investment horizon who are comfortable with the potential for price fluctuations. The fund offers a liquid and transparent vehicle to gain exposure to the unique risk-return profile of the AT1 bond market.