Deutsche Asks To Offer Long/Short ETFs

July 18, 2013

Deutsche Bank expands its U.S. ETF plans with request to offer long/short strategies.

Deutsche Bank’s U.S.-based ETF unit filed regulatory paperwork that would give it permission to issue long/short and 130/30 long/short exchange-traded funds targeting either U.S. or non-U.S. securities, as the firm continues to push into the U.S. ETF market with its 12-fund lineup of “db X-trackers” funds.

The filing requests permission to market index-based funds with either a straight 100 percent long/100 percent short approach or with 130/30 strategies. Any such funds launched that target foreign securities will do so using depositary receipts—as long as they are liquid enough, the filing said.

The filing speaks to the flexibility of the ETF wrapper and to the hotbed of innovation that the ETF industry has become. Advisors and investors, more and more, are coming to expect previously inaccessible strategies to become available—all in relatively inexpensive packages that can be traded intraday on exchanges.

Deutsche is also seeking permission to create its own indexes on the long/short funds, making the company part of one of the more interesting trends in the world of ETFs and indexing of the past few years. Firms like WisdomTree and IndexIQ pioneered so-called affiliated indexes, but it has begun to spread and now includes newcomers such as Northern Trust’s ETF unit, FlexShares.

Additionally, Deutsche is seeking to package some of the funds in a “master feeder” structure, which means, among other things, that each master fund would also operate as a traditional mutual fund, the filing said. The master feeder structure recalls the way Vanguard entered the ETF market; namely, by making its exchange-traded funds separate share classes of its open end mutual funds.

Deutsche Bank, as noted, now has 12 U.S.-listed ETFs, with total assets of $421 million, according to IndexUniverse’s latest ETF League Table. Crucially, however, that $421 million figure massively understates the company’s U.S. assets under management.

After all, the firm sponsors the “PowerShares DB” families of ETFs and ETNs, which make up a big chuck of PowerShares’ assets. As an example, the $6.4 billion PowerShares DB Commodity Tracking Fund (NYSEArca: DBC) can fairly be counted as Deutsche assets, though Invesco PowerShares does play a hugely important role in marketing the “PowerShares DB” brand in the United States.

ALPS Distributors’ name was also on the filing, suggesting that the Denver-based company will be responsible for marketing the funds. ALPS is also the sponsor of 11 of its own ETFs, with total assets of more than $7 billion.


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