After becoming one of the dominant purveyors of currency hedged exchange traded funds and the issuer behind the largest China A-shares ETF, Deutsche Asset & Wealth Management (Deutsche AWM), the ETF issuing unit of German banking giant Deutsche Bank (NYSE: DB), is adding to its lineup of fixed income ETFs with Tuesday’s launch of three new funds.
Deutsche AWM’s new bond ETFs look to capitalize on an increasingly prominent theme in the fixed income ETF space: Hedging exposure to rising interest rates by lowering an ETF’s duration to hardly noticeable levels or, in some cases, employing negative duration. [Evaluating Short Duration and Rate Hedged ETFs]
Deutsche AWM’s new bond ETFs are as follows: The Deutsche X-trackers Investment Grade Bond – Interest Rate Hedged ETF (NYSEArca: IGIH), the Deutsche X-trackers High Yield Corporate Bond – Interest Rate Hedged ETF(NYSEArca: HYIH) and the Deutsche X-trackers Emerging Markets Bond – Interest Rate Hedged ETF (NYSEArca: EMIH).
“We designed IGIH, HYIH and EMIH as tools for managing duration, a source of both risk and potential return that can be dialed up and down using this new product suite. This feature may be particularly appealing as investors seek to mitigate solutions for reducing the interest rate sensitivity of their bond portfolios in anticipation of rising rates,” said Fiona Bassett, Head of Deutsche AWM’s Passive Business in the Americas, in a statement.
The Deutsche X-trackers High Yield Corporate Bond – Interest Rate Hedged ETF tracks the DBIQ High Yield Corporate Bond – Interest Rate Hedged Index, “which aims to mitigate exposure if interest rate sensitivity across the yield curve in a rising rate environment,” according to Deutsche AWM. The new ETF holds 67 issues with a yield to worst of 4.9%
The Deutsche X-trackers Investment Grade Bond – Interest Rate Hedged ETF “seeks to track the performance, before fees and expenses, of the DBIQ Investment Grade Corporate Bond – Interest Rate Hedged Index, which aims to mitigate exposure of interest rate sensitivity across the yield curve in a rising rate environment,” according to the issuer.
Home to 85 issues, IGIH’s underlying index has modified duration of just 0.01 years and a yield to worst of 1.39%. IGIH includes issues from Bank of America (NYSE: BAC), Wal-Mart (NYSE: WMT) and Goldman Sachs (NYSE: GS).
The Deutsche X-trackers Emerging Markets Bond – Interest Rate Hedged ETF “seeks to track the performance, before fees and expenses, of the DBIQ Emerging Markets Bond – Interest Rate Hedged Index, consisting of U.S. dollar denominated emerging markets bonds and aims to mitigate exposure of interest rate sensitivity across the yield curve in a rising rate environment,” according to Deutsche AWM.
EMIH’s underlying index also has a modified duration of just 0.01 years and a yield to worst of 3.8%. Approximately 30 countries are represented in the ETF, including several frontier markets. Nearly 52% of EMIH’s index members are rated BBB+, BBB or BBB-.
EMIH charges 0.5% per year while IGIH has annual fees of 0.25%. HYIH’s annual expense ratio is 0.45%.
Although Deutsche AWM is known primarily for its currency hedged and A-shares ETFs, the issuer has five target-date ETFs trading in the U.S. as well as the Deutsche X-Trackers Municipal Infrastructure Revenue Bond Fund (NYSEArca: RVNU) and the DeutscheX-trackers Solactive Investment Grade Subordinated Debt Fund (NYSEArca: SUBD), which provides exposure to the dollar-denominated investment-grade subordinated corporate bond market.
Deutsche AWM’s ETF business in the Americas had $7.8 billion in assets under management as of Feb. 15, an 82% increase from the end of 2015, according to the statement. That growth has been led in large part by the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF) and the Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU), two of the fastest-growing U.S.-listed ETFs dating back to 2014. [A Rush to Europe ETFs]