Invesco is expanding its range of innovative fixed income exposures with the launch of the Invesco EUR AT1 CoCo Bond UCITS ETF. This fund will follow the same passive approach used by the firm’s US$1.7 billion USD AT1 ETF but will target the rapidly growing Euro-denominated segment of the market.
Gary Buxton, Head of Product, EMEA at Invesco , said: “Our ETF business crossed over US$1 trillion in global AUM last year, driven by growth across both core assets as well as more differentiated exposures. In Europe, this includes our market-leading range of exposures to hybrid securities, where we not only have the largest AT1 CoCo Bond ETF but also the only ETFs targeting fixed and variable rate preferred shares and EUR corporate hybrids. We’re excited to kick off 2026 with another first-to-market product for European investors.”
Paul Syms, Head of EMEA ETF Fixed Income and Commodity Product Management at Invesco , said: “When the first AT1 CoCo Bond was issued in 2013 and for a few years after that, banks primarily focused on issuing in USD to benefit from the broader investor base in US fixed income. However, as the AT1 market has matured and issuance has slowed from the rapid pace of the early years, European banks increasingly are choosing to issue AT1s in Euros, being a more natural currency for their regulatory capital.” The AT1 market has more than doubled in size in 10 years, growing to over US$300 billion. In 2015, over 60% of global AT1s in issuance were denominated in USD, more than double the value denominated in EUR, but the relative currency weights are more balanced now at 44% vs 37% respectively. For European investors, being able to invest in EUR removes the need to hedge currency risk and the associated costs involved. This might be particularly appealing for investors wanting to diversify away from USD assets due to a weaker Dollar.
Matthew Tagliani, Head of EMEA ETF Product at Invesco , said: “This new ETF adds to our range of more innovative fixed income exposures and comes at a time when many investors are looking for alternative ways to generate higher levels of income. AT1s offer attractive levels of income, with the credit exposure not driven by the riskiness of the issuer, as is typically the case, but by its subordination to most other debt from the same issuer. AT1s also offer a different type of exposure than broad high yield. AT1s are issued by banks, whereas high yield tends to comprise securities primarily from industrials and, to a lesser extent, non-banking financials.”
About the Invesco ETF
The Invesco ETF will follow the iBoxx EUR Contingent Convertible Liquid Developed Market AT1 (8% Issuer Cap) Index. For eligibility to the index, all bonds must have a credit rating of B or above and at least EUR 500 million outstanding. Individual issuers are capped at 8% at each monthly rebalancing. The ETF aims to replicate the performance of the index by holding all the constituents and rebalancing those holdings when the index is rebalanced. An introduction to AT1s
Additional Tier 1 bonds (“AT1s”) are a specific type of Contingent Convertible (“CoCo”) bond created out of the lessons learned from the Global Financial Crisis. They are designed to be converted into equity based on specific triggers, acting as a buffer in times of financial distress. Regulations including AT1s has resulted in European banks having stronger balance sheets. In aggregate, the Common Equity Tier 1 (“CET1”) Ratio has risen from around 6% before the Global Financial Crisis to now almost 15%, considerably higher than the 5.125-7% levels at which an AT1’s conversion mechanism would be triggered.
An investment in this fund is an acquisition of units in a passively managed, index tracking fund rather than in the underlying assets owned by the fund.
*The ETF tickers refer to listings on Euronext Milan. Accumulating and Distributing shares are also available on Xetra (in EUR) and Accumulating shares only on the SIX Swiss Exchange (in CHF). GBP-hedged Distributing shares and USD-hedged Accumulating shares are available on the LSE.
