Brookmont Unveils First U.S.-Listed CAT Bond ETF

This first-of-its-kind ETF lists on the NYSE and provides investors access to catastrophe bonds (CAT). These are high yield debt instruments typically issued by insurance companies to fund disaster recovery efforts.

With an expense ratio of 1.58%, ILS offers exposure to bonds designed to protect the issuer from loss in the event of natural disasters like hurricanes, earthquakes, and wildfires. The expense ratio is much higher than the average for fixed income ETFs, which normally cost less than half of that. However, the fund’s distinct focus on CATs sets it apart in a market looking for alternative sources of yield.

The prospectus calls the natural disasters the bonds are meant to protect against “trigger events.” It notes that such an event could consume all or some of a bond’s principal, one of the risks of the fund. However, that risk is spread across the entire portfolio.

“ILS delivers a low-correlation, high-yield alternative to traditional bonds at a time when investors are seeking new sources of income and diversification,” said Principal and Chief Investment Officer of Brookmont Capital Management Ethan Powell. 

One of the standout features of the fund is its ability to target attractive floating rate yields. 

These floating-rate yields adjust with interest rate movements. This means they can perform well even in an environment of rising rates, providing a hedge against inflation. Also, the fund’s structure allows investors to gain exposure to CAT bonds without the need to directly engage with the complex world of this specialized market. 

“Rising weather-related risks highlight the need for CAT bonds more than ever. This ETF invests across various natural catastrophe risks and [regions. It] rewards investors for supporting disaster recovery efforts while diversifying their portfolios,” Powell added.

See More: Compelling Content at Exchange Conference

To further reduce risk for investors, ILS employs a fully cash-collateralized structure. The fund’s broad diversification minimizes the impact of any single event on overall performance. 

ILS will be actively managed by Brookmont. King Ridge Capital Advisors will act as a subadvisor.  

The CAT bond market is currently valued at around $50 billion, outperforming traditional high-yield debt. Natural disasters are on the rise and the CAT bond market is projected to grow in the coming years. Therefore, ILS presents new market opportunities for investors. 

For more information, please visit VettaFi.com | ETF Trends.