COBO is linked to the BNP Paribas Diversified USD Covered Bond Index, which follows the performance of a portfolio of AAA-rated covered bonds, which are denominated in U.S. dollars.
Covered bonds are debt instruments issued by a financial institution that are secured by a segregated pool of financial assets or "cover pool" which typically consist of mortgages or public-sector loans.
"Many investors are interested in high credit quality bonds, but the supply of AAA-rated corporate debt in the U.S. is very limited," said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares' investment advisor.
The first covered bond was created in 1769 in Prussia by Frederick the Great in the aftermath of the Seven Years' War. The rules governing the covered bond market were established in 1900, under the German sponsored "Mortgage Bank Act." Today, the global covered bond market is estimated to be approximately $3 trillion outstanding.
COBO is a short-term bond ETF and bonds held by the fund mature in 3.31 years. The average yield to maturity for the fund is 1.48%, which is in the same range as U.S. Treasuries with 3-7 year durations (NYSEArca:IEI - News).
Covered bonds differ from other debt instruments, including asset-backed securities, in that bondholders have a senior, unsecured claim against the issuing financial institution, which is secured by the cover pool in the event of default by the issuer.
COBO's underlying index is comprised of covered bonds issued exclusively by non-U.S. institutions and each bond must be AAA-rated by at least one independent rating agency. The index is rebalanced on the last business day of January, April, July and October.
As of the date of the May 23 prospectus, the index consists of 43 covered bonds issued by 20 different financial institutions. These issuers are primarily Canadian and European and come from: Canada (59.0%); Norway (11.6%); France (6.3%); Sweden (4.9%); England (3.2%); Australia (6.0%); and Switzerland (9.0%). The above weights represent the percentage of dollars invested per country.
After calculating temporary fee waivers of 0.43% that last until September 30, 2013, the net expense ratio for COBO is 0.35%.
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