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Deutsche Rolls Out "Quality Control" Emerging Markets Bond ETF

Alice Gråhns, 13 April 2016

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The German firm has launched an exchange traded fund that it says deals with some of the distortions associated with conventional fixed income approaches.

Deutsche Asset Management has launched a fixed income exchange traded fund giving exposure to emerging markets sovereign bonds while using a quality control to avoid troubled sectors. 

The ETF physically replicates an index and is listed on the London Stock Exchange. It follows the end of last year’s launch of the firm’s first strategic beta ETF tracking a quality-weighted eurozone sovereign bonds index, Deutsche AM, part of Deutsche Bank, said yesterday. 

“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,” said Martin Weithofer, head of strategic beta at Deutsche Asset Management. 

The ETF is called the db x-trackers iBoxx USD Emerging Sovereigns Quality Weighted UCITS ETF (DR). It tracks the Markit iBoxx USD Emerging Markets Sovereigns Quality Weighted Index. Weighting is based on fundamental factors such as a country’s capital, character (measured by ability to pay), condition (macroeconomic position) and capacity (ability to service interest charges), thereby, Deutsche says, avoiding a tendency for fixed income benchmarks to weight in favour of the most indebted issuers.

Countries that are currently overweighted in the emerging markets quality-weighted index include the Philippines and Turkey, while underweighted countries include Brazil and Venezuela.

The fund has an annual fee of 0.50 per cent for the US dollar share class.

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