Timing of catastrophe bond ETF launch 'fortuitous' amid market volatility

By Henry Gale

April 10 - (The Insurer) - The investment manager behind a new exchange-traded fund (ETF) for catastrophe bonds described the timing of its launch as "fortuitous" after the alternative asset fund's first week of trading coincided with turmoil in global markets.

On April 1, the Brookmont Catastrophic Bond ETF became the first U.S.-listed ETF to be dedicated exclusively to the cat bond market. "We're really a safe haven in what is a catastrophe for every other risk asset right now," Ethan Powell, principal and chief investment officer of Brookmont Capital Management, told The Insurer on Tuesday.

Sweeping tariffs announced by U.S. President Donald Trump last week prompted a plunge in stock markets, with volatility across various asset classes in subsequent days amid uncertainty around the prospects for retaliation and negotiations. However, the cat bond market remained stable, according to updates posted by investment managers Plenum and Icosa earlier this week.

"This is an asset that clearly retains its value in times of volatility," said Rick Pagnani, co-founder of the ETF's sub-adviser King Ridge Capital Advisors. However, the investment managers have not been advertising the fund to tactical traders or self-directed retail investors.

"We are exclusively talking about it as a strategic longer-term allocation in a portfolio," said Powell. "It just so happens that we're in a period where it could provide great stability in a portfolio as a tactical allocation."

He added: "We're trying to build a business around this asset class. And you don't do that through fast money."

Powell said the fund had seen interest both from investors already familiar with cat bonds and smaller institutions such as family offices that are newer to the asset class but comfortable with the trading dynamics of ETFs. The fund provides an easier way for those funds to access cat bonds without the lock-up periods associated with traditional ILS investment, he said.

The ETF is actively managed and allocates assets only to bonds covering natural catastrophe events, excluding cyber and terror risk. This is because natural catastrophes have historically shown a lower correlation with broader credit and equity markets, Pagnani said. He added that the investment managers had greater confidence in the modelling available for natural perils.

Cat bonds for manmade perils currently represent a small portion of the overall market. "I could easily see us doing maybe a separate ETF once that part of the marketplace matures more," said Powell.

Additional reporting from Suzanne McGee.