Investors who are interested in gaining exposure to international fixed-income assets but are wary of the negative effects of foreign exchange market swings can look to two new Deutsche Asset Management international bond currency-hedged exchange traded funds.
On Tuesday, Deutsche Asset Management launched the Deutsche X-trackers Barclays International Treasury Bond Hedged ETF (BATS: IGVT) and Deutsche X-trackers Barclays International Corporate Bond Hedged ETF (BATS: IFIX). IGVT has a 0.25% expense ratio and IFIX has a 0.30% expense ratio.
Unlike most international bond funds, the two new ETFs try to diminish the negative effects of weakening foreign currencies or a strengthening U.S. dollar. Investing in international securities exposes investors to foreign currencies. Consequently, a weakening foreign currency would usually reduce the U.S. dollar-denominated return on an international security.
The two funds will enter into forward currency contracts designed to offset their exposure to foreign currencies by selling the applicable foreign currency forward at the one-month forward rate, according to the prospectus sheet.
“During times of sharp market movements, investors are looking for stable sources of revenue,” Fiona Bassett, Head of Passive Asset Management in the Americas, said in a press release. “In our view, the currency hedging aspect of IGVT and IFIX allows investors an opportunity to preserve the reliable sources of income, stable and consistent cash flow typically associated with bond investments, decreasing the risk brought on by currency exposure.”
[related_stories]IGVT will try to reflect the performance of the Barclays Global Aggregate Treasury ex USD Issuer Diversified Bond Index (USD Hedged), which is comprised of investment grade sovereign debt issued in developed and emerging markets denominated in the issuer’s own domestic currency. Specifically, sovereign bonds will be denominated in one of the following: Canadian dollar, Chilean peso, Mexican peso, euro, British pound, Swiss franc, Czech koruna, Danish krone, Israeli new shekel, Norwegian krone, Polish zloty, Russian ruble, Swedish krona, Turkish lira, South African rand, Japanese yen, Australian dollar, Hong Kong dollar, South Korean won, New Zealand dollar, Singapore dollar, Malaysian ringgit and Thai baht.
IFIX will try to reflect the performance of the Barclays Global Aggregate Corporate Ex USD Bond Index (USD Hedged), which is comprised of investment grade corporate debt issued in developed and emerging markets in the industrial, utility and financial sectors. Bonds will be denominated in one of the following: Canadian dollar, euro, British pound, Swiss franc, Czech koruna, Danish krone, Norwegian krone, Polish zloty, Swedish krona, South African rand, Japanese yen, Australian dollar, Hong Kong dollar, South Korean won, New Zealand dollar, Singapore dollar, Malaysian ringgit and Thai baht.
SEE MORE: Bond ETF Investors: Don’t Give Up Yields if Rates Rise
Deutsche Asset Wealth is also lowering the management fee on two of its interest rate hedged ETFs ahead of potential Federal Reserve monetary policy changes. The Deutsche X-trackers High Yield Corporate Bond – Interest Rate Hedged ETF (BATS: HYIH) will have a 0.35% expense ratio and the Deutsche X-trackers Emerging Markets Bond – Interest Rate Hedged ETF (BATS: EMIH) will have a 0.45% expense ratio.
Moreover, according to the prospectus sheet, the ETF provider is working on the Deutsche X-trackers Barclays International High Yield Bond Hedged ETF (BATS: IHIY).
For more information on new fund products, visit our new ETFs category.