Deutsche expands US suite of currency-hedged international fixed income ETFs

Oct 25th, 2016 | By | Category: Fixed Income

Deutsche Asset Management has launched two fixed income exchange traded funds -the Deutsche X-trackers Barclays International Treasury Bond Hedged ETF (Bats: IGVT) and the Deutsche X-trackers Barclays International Corporate Bond Hedged ETF (Bats: IFIX), expanding their suite of currency-hedged international bond ETFs available to US investors.

Deutsche expands US suite of currency-hedged international fixed income ETFs

Fiona Bassett, Head of Passive in the Americas for Deutsche Asset Management.

The ETFs track the Barclays Global Aggregate Treasury Ex USD Issuer Diversified Bond Index and the Barclays Global Aggregate Corporate Ex USD Bond Index, while each utilizes currency futures to offset the risk of fluctuating exchange rates eroding the US dollar value of expected coupon and principal payments.

Fiona Bassett, Head of Passive Asset Management in the Americas, commented: “During times of sharp market movements, investors are looking for stable sources of revenue. Through the new Deutsche X-trackers currency-hedged international bonds funds, we are offering investors an opportunity to potentially reduce volatility and drawdown risks while strengthening returns.

“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.”

The Barclays Global Aggregate Treasury ex USD Issuer Diversified Bond Index is a version of Barclay’s flagship Global Treasury Index, which has removed exposure to US government debt. This multi-currency benchmark includes investment grade, fixed-rate bonds issued by governments in their native currencies. As of 28 October 2016, it is diversified across Europe (55.8%), Asia (34.6%), North America (7.8%) and Africa (1.8%): its largest country exposures are Japan (27.0%), France (7.5%), the UK (7.3%), Netherlands (6.2%) and Italy (6.1%).

IGVT has a total expense ratio (TER) of 0.25%.

The Barclays Global Aggregate Corporate Ex USD Bond Index is a measure of the performance of global corporate investment grade debt from various local currency markets. This benchmark includes bonds from both developed and emerging market issuers. It may contain bonds from US issuers as long as these are denominated in a foreign currency. It is diversified across Europe (63.0%), North America (27.9%) and Asia (9.1%) with the largest country exposures being the US (20.4%), France (15.8%), the UK (11.6%), Germany (11.4%) and Canada (7.7%). Dominated by exposure to the financials sector (45.7%), the index also significantly tracks the consumer staples (12.3%), telecommunication (7.1%), energy (6.4%) and industrials (6.1%) sectors.

IFIX has a TER of 0.30%.

Another US-listed ETF offering exposure to the Barclays Global Aggregate Corporate Ex USD Bond Index is the SPDR Bloomberg Barclays International Corporate Bond ETF (NYSE: IBND). This ETF has $149m in assets under management and has a total expense ratio (TER) OF 0.50%.

Deutsche believes these ETFs will likely be met with strong demand from investors who wish to diversify the fixed income segment of their portfolios away from US-based exposures as the Federal Reserve sets about normalising interest rates.

“If US interest rates rise, international fixed income may help investors diversify away from concentrated US-rate exposure,” added Bassett. “Our new suite gives investors access to a variety of bonds on a currency-hedged basis within the international space covering the Treasury and investment-grade corporate bond segments of the fixed income market. We are committed to providing relevant, innovative and cost-effective solutions to our clients for their international investing needs.”

In a bid to increase the competitiveness of their fixed income range, Deutsche has also reduced management fees on two other funds in their line-up. The Deutsche X-trackers High Yield Corporate Bond – Interest Rate Hedged ETF (Bats: HYIH) now has a total expense ratio (TER) of 0.35%, reduced from 0.45%; while the Deutsche X-trackers Emerging Markets Bond – Interest Rate Hedged ETF (Bats: EMIH) now has a TER of 0.45%, reduced from 0.50%.

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