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Deutsche AWM Steps Into Fixed Income Strategic Beta Market

Amisha Mehta

17 December 2015

has entered the fixed income "strategic beta" market with a new eurozone sovereign bond exchange-traded fund.

db x-trackers iBoxx Eurozone Sovereigns Quality Weighted UCITS ETF has been listed on the Deutsche Börse. The fund provides exposure to an index of eurozone sovereign bonds that have been screened using a quality methodology. This involves analysing a country’s capital (the buffer for future debt expenses), character (willingness to pay), condition (macroeonomic situation) and capacity (ability to service interest and debt payments). Within these categories are a number of fundamental measures, such as GDP growth rate.

Strategic beta – or "smart beta" – refers to products that vary from traditional weighting methodologies. These ETFs are becoming more common on equity benchmarks but there remain few strategic beta fixed income ETFs on the European market, Deutsche AWM said.

The physical replication fund, which has an annual all-in fee of 0.2 per cent, tracks the new Markit iBoxx EUR Eurozone Sovereigns Quality Weighted Index. By weighting based on fundamental factors, the index aims to counteract the tendency for fixed income benchmarks to weight in favour of the most indebted issuers.

“The aim of this ETF is to provide a straightforward method of acquiring quality-focused sovereign bond exposure, and to provide investors with the potential for an improved risk versus return profile,” said Martin Weithofer, Deutsche AWM’s head of strategic beta. 

“The quality weighted index provides similar returns to the traditional index but with potentially lower volatility and a smaller maximum peak-to-trough decline.”