EUROPE/US – The New York Stock Exchange (NYSE) has issued the world’s first fixed income exchange traded funds (ETFs) but a spokeswoman for Morgan Stanley in London says foreign investors would do better to leave the four new funds alone.
The spokeswoman says the markets have been expecting the new style ETFs for some time but it is mainly domestic US investors - initially retail and high-net worth - that will benefit from them the most.
“It would seem the new fixed income ETFs are designed with domestic investors in mind as overseas investors could be liable to a 30% tax on the dividends based on the new ETFs, whereas US-based players are not. If they overseas_investors invested in the underlying bonds directly they wouldn’t pay any withholding tax,” she explains.
However, she says it is only a matter of time before fixed income ETFs appear in Europe. “The ETF markets globally have been talking about developing products of this kind for some time and it is really a natural extension of the way the ETF market has grown. We know of and expect the first European ETFs very soon.”