The financial world witnessed a groundbreaking innovation with the launch of the world's first exchange-traded fund investing in catastrophe bonds, as reported by the Financial Times. The Brookmont Catastrophic Bond ETF (ILS) made its debut on the New York Stock Exchange, offering investors a unique opportunity to access returns uncorrelated to traditional asset classes.
Catastrophe bonds are securities issued by insurers, reinsurers, and governments to transfer risk from major disasters. These bonds typically offer attractive double-digit yields, but investors assume the risk of losses beyond preset thresholds. The ILS ETF specifically focuses on bonds linked to "randomly occurring" natural disasters such as hurricanes, wildfires, storms, and earthquakes.
The global catastrophe bond market has grown significantly, now estimated at $52 billion according to Artemis.bm. This ETF represents the first time this asset class has been made accessible through the popular ETF format, potentially opening it to a broader range of investors.
The Brookmont fund is actively managed with particular attention to liquidity and diversification. Ethan Powell, Chief Investment Officer of Texas-based Brookmont Capital Management, notes that the ETF has built-in liquidity buffers and can handle significant redemptions if necessary.
The ETF has a total expense ratio of 1.58% and is primarily targeted at smaller institutional investors. Brookmont plans to launch additional ETFs designed to increase access to traditional hedge fund strategies.