World’s First Catastrophe-Bond ETF Falters in ‘Crazy’ Market

The world’s first-ever exchange-traded fund based on catastrophe bonds has failed to get the seed capital it expected after launching on the eve of the Trump administration’s tariff war.

“Some of our seed capital investors are sitting on the sidelines because the market turmoil has taken people’s eyes off new asset classes,” said Ethan Powell, chief investment officer of Texas-based Brookmont Capital Management LLC, which oversees the fund. “It’s a crazy environment,” and “we don’t want to be too pushy right now.”

The Brookmont Catastrophic Bond ETF (Ticker: ILS US), which began trading on the New York Stock Exchange on April 1, is intended to make one of the most esoteric corners of the bond market more accessible to regular investors. The bonds have consistently generated market-beating returns in recent years, with record issuance levels turning the asset class into a $50 billion market.

Catastrophe bonds, which last year returned 17% after rising a record 20% in 2023, are issued by insurers looking for ways to pass on part of their risk to the capital markets. Investors can be on the hook for large sums if a natural disaster such as a hurricane hits, but stand to make sizable profits if it doesn’t. Loss probabilities are dictated by highly calibrated terms that set narrow windows for when investors need to fork out payments.

In recent years, the bonds have managed to clock in gains despite being exposed to a series of major hurricanes. And as other asset classes slumped during this month’s market turmoil, so-called cat bonds were among the few financial instruments that were unscathed by the wider selloff.

But the securities can be a hard sell for retail investors who have never before had to price the risk of a typhoon or earthquake.

“The misconception is that you’re bailing out insurers and not being properly compensated for the risk,” Powell said. “The asset class does itself no favors by having ‘catastrophe’ in the name.”

It’s part of the reason why the ETF launched without the benefit of a lead market maker, leaving it without a stabilizing presence committed to quoting bid and ask prices.

The Brookmont ETF currently holds 16 bonds with a total asset value of just $6 million, according to data compiled by Bloomberg. The asset manager had intended to raise as much as $25 million in seed capital and eventually include as many as 75 bonds in the portfolio.

While institutional investors had expressed interest in the ETF and “soft circled” additional investments, they’ve since backed away, Powell said.

Meanwhile, other corners of the cat bond market continue to see growing demand from institutional investors, hedge funds and family offices. Europe-domiciled UCITS cat-bond funds currently oversee more than $15 billion, up from $8.8 billion in 2022, according to Artemis, which tracks the market for insurance-linked securities.

Powell said cat bonds can serve as an excellent diversification tool in periods of severe market turbulence. So “part of me is happy we launched in the middle of all this volatility when even safe-haven assets got obliterated,” he said.

“But I would have liked to have been a little earlier,” he said. “We could have told the story better.”

Copyright 2025 Bloomberg.

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