The new ETF from Tabula is a groundbreaking fund that allows investors to access “fallen angel” (downgraded) bonds while aligning with the climate objectives outlined in the Paris Agreement.

Tabula Investment Management, a European ETF provider, has introduced the Paris-aligned Global High Yield Fallen Angels Climate UCITS ETF, which focuses on fallen angel bonds. These bonds have been downgraded from investment grade but offer a higher credit quality compared to typical high-yield bonds, according to Tabula CEO Michael John Lyttle. He noted that many fallen angels enter the high yield universe with a BB rating and tend not to slip below that level.

Lyttle observes that fallen angels present the potential to return to investment grade over time, with a lower default rate compared to broader high yield exposure. The long-term average global default rate for BB-rated bonds, as measured by S&P, stands at 0.59%, significantly lower than the 25.7% default rate for CCC-rated bonds and below. (ESG CLARITY)

Jason Smith, Tabula’s CIO, pointed out that fallen angels have lower default risk and the possibility of upgrades. These bonds are typically issued by large, well-established companies with business models and financing strategies based on investment grade borrowing rates. Therefore, management teams have strong incentives to address the issues that led to the downgrade, creating the potential for price appreciation when the bonds rebound.

This new ETF from Tabula has attracted $50 million in assets, seeded by a prominent Nordic institution. The launch reinforces Tabula’s commitment to environmental, social, and governance (ESG) goals, as 80% of its ETF assets under management are now allocated to SFDR Article 8 and 9 funds.

The Tabula Global High Yield Fallen Angels Paris-aligned Climate UCITS ETF (THFA) is listed on the London Stock Exchange with a total expense ratio (TER) of 0.50%.

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Image by Łukasz Winiarski from Pixabay