Daily ETF Watch: DB Plans Hedged Funds

August 18, 2014

Deutsche Bank files for four interest-rate-hedged bond ETFs.

Deutsche Bank put four new ETFs into registration that are geared toward investors betting that inflation and interest rates will go up. The funds track different slices of the global bond market, taking long positions in their targeted sectors of the bond market and short positions in U.S. Treasury notes or bonds, according to the prospectus.

Interestingly, the funds will all track in-house indexes rather than benchmarks from better-known bond index providers like Barclays or Bank of America Merrill Lynch. All four ETFs are set to list on the NYSE Arca exchange, but the filing did not include tickers or expenses.

The list includes the following:

  • The Deutsche X-trackers High Yield Corporate Bond - Interest Rate Hedged ETF will target high-yield corporate bonds denominated in U.S. dollars.
  • The Deutsche X-trackers Investment Grade Bond - Interest Rate Hedged ETF will cover investment-grade corporate debt denominated in U.S. dollars.
  • The Deutsche X-trackers U.S. Aggregate Bond - Interest Rate Hedged ETF will target the entire range of U.S. dollar-denominated investment-grade debt, including government and corporate bonds, as well as mortgage-backed and asset-backed securities.
  • The Deutsche X-trackers Emerging Markets Bond - Interest Rate Hedged ETF will cover U.S. dollar-denominated debt issued by governments and government-affiliated agencies in roughly 30 emerging markets.

Investors, financial professionals and others have long anticipated an increase in interest rates. It’s not clear when we will see that trend emerge, but some ETF providers are attempting to position themselves to take advantage of that probable eventuality.

The first on the scene was Van Eck, which has never shied from innovative new strategies. The Market Vectors Treasury-Hedged High Yield Bond ETF (THHY) was rolled out in March 2013. Despite being first to market, it has only $10 million in assets under management.

ProShares launched what are arguably the most successful interest-rate-hedged bond ETFs. The ProShares Investment Grade - Interest Rate Hedged ETF (HYHG) debuted in May 2013 and the ProShares High Yield – Interest Rate Hedged ETF (IGHG) in November 2013. Those funds now have $164 million and $108 million in assets, respectively.

In May, iShares rolled out two interest-rate-hedged ETFs. The iShares Interest Rate Hedged High Yield Bond ETF (HYGH) and the iShares Interest Rate Hedged Corporate Bond ETF (LQDH) target the high-yield and investment-grade segments of the U.S. bond market, respectively. They track indexes from Markit’s iBoxx family, and HYGH comes with an expense ratio of 0.55 percent, while LQDH charges 0.25 percent.

 

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