Deutsche Asset Management has launched a quality-weighted fixed income ETF that provides exposure to emerging market sovereign bonds….…
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Martin Weithofer, Deutsche Asset Management’s Head of Strategic Beta
The ETF has listed on the London Stock Exchange and the Deutsche Börse and follows the December 2015 launch of Deutsche Asset Management’s first strategic beta ETF tracking a quality-weighted Eurozone sovereign bonds index.
db x-trackers iBoxx USD Emerging Sovereigns Quality Weighted UCITS ETF (DR)* tracks a newly-developed index – the Markit iBoxx USD Emerging Markets Sovereigns Quality Weighted Index – which re-weights emerging market countries within a benchmark using a unique quality-weighted methodology based on fundamental factors (see Notes to Editors for more detail). Traditional fixed income sovereign benchmarks by contrast typically weight constituents by market value of outstanding debt. This can result in the most indebted countries having the highest weighting in the index.
“Strategic beta makes a lot of sense in the fixed income space, and we intend to be at the forefront of product development,” said Martin Weithofer, Deutsche Asset Management’s Head of Strategic Beta. “For emerging markets in particular we found that the fundamental quality-weighted methodology can be useful in under-weighting countries prior to downgrades, which have often trailed fundamental underlying changes.”
By weighting based on fundamental factors, a quality-weighted index helps to counteract the tendency for fixed income benchmarks to weight in favour of the most indebted issuers. Eligible bonds in the emerging markets quality-weighted index are selected in accordance with an adjustment methodology that grades sovereign issuers using a series of fundamental measures, such as global competitiveness and inflation rate, history of default, sovereign debt as a proportion of GDP and GDP growth rate.
Countries that are currently over-weighted in the emerging markets quality-weighted index – relative to a traditional non-weighted emerging markets sovereign index – include the Philippines and Turkey. Countries that are currently under-weighted in the emerging markets quality-weighted index include Brazil and Venezuela.
The annual yield of the emerging markets quality-weighted index is 4.56%, with duration of 6.95 years (Source, Markit iBoxx, March 31, 2016). The ETF is physically replicating and has an annual All-in Fee of 0.50% for the US dollar share class.
Name of ETF: db x-trackers iBoxx USD Emerging Sovereigns Quality Weighted UCITS ETF (DR)
Share Class: 1D
BBG Code: XQUA
Index: Markit iBoxx USD Emerging Markets Sovereigns Quality Weighted Index (IBXXQW5 Index)
Share Class Currency: USD
Annual All-in Fee: 0.50%
UCITS compliant: Yes