Catastrophe Bond ETF Opens To Mainstream Investors

A high-risk, high-reward market is set to become more accessible to mainstream investors with the launch of the world’s first catastrophe bond exchange-traded fund (ETF), which began trading this Tuesday. This move aims to open up a booming market, which has surged in response to the increasing risks posed by global climate events.

Catastrophe bonds, which have seen explosive growth in recent years, reached a record $17.7 billion in sales last year. However, they have traditionally been available mainly to private investors. Now, retail traders will have the opportunity to tap into this market through the Brookmont Catastrophic Bond ETF, listed on the New York Stock Exchange under the ticker ILS.

Ethan Powell, principal and chief investment officer of Brookmont, shared insights into the growth of the catastrophe bond market, telling Bloomberg TV, “If you look at the catastrophic bond asset class 15, 20 years ago, it was sub-$10 billion. Today, our investable universe sits at $50 billion.” Powell predicts that the market will reach $80 billion by the end of the decade.

Catastrophe bonds are fixed-income securities that help fund insurance payouts in the event of major disasters. These bonds typically offer double-digit yields, but with the risk that investors could lose their entire investment if a disaster triggers substantial insurance claims. Despite the inherent risk, the market plays a vital role in helping reinsurers mitigate the financial impact of climate-related disasters, ensuring that insurance providers can continue to pay out claims.

Despite widespread damage from events like Hurricanes Helene and Milton, investors have shown confidence in catastrophe bonds. In 2024, the Swiss Re Global Cat Bond Index rose by 17%, a testament to investor optimism even amid severe natural disasters.

While the market continues to grow, some uncertainties remain around the Brookmont ETF. Questions persist about how the fund will manage potential losses from catastrophic events and how it will address the market’s limited liquidity. As mainstream investors gain access to this niche market, these concerns will need careful attention.