Daily ETF Watch: DB's Holiday Filing Flurry

Deutsche Bank celebrated the winter holidays with a barrage of filings in the past two weeks of the year. The filings include some funds targeting unique asset classes, as well as a raft of factor-based ETFs that look like they will compete directly with existing ETFs that are tied to some of the MSCI Risk Premia indexes. 

A Smart Beta Plan Comes Together
The biggest of the filings included a roster of 10 smart-beta funds targeting different factors. The list is as follows:

• Deutsche X-trackers US Multifactor ETF
• Deutsche X-trackers Developed Markets Multifactor ETF
• Deutsche X-trackers Emerging Markets Multifactor ETF
• Deutsche X-trackers US Value ETF
• Deutsche X-trackers US Momentum ETF
• Deutsche X-trackers US Quality ETF
• Deutsche X-trackers US Low Volatility ETF
• Deutsche X-trackers All World Low Volatility ETF
• Deutsche X-trackers Developed World Low Volatility ETF
• Deutsche X-trackers Emerging Markets Low Volatility ETF

The proposed funds could put Deutsche Bank into direct competition with iShares and State Street Global Advisors.

iShares has already launched a family of factor-based ETFs targeting the US market and based on MSCI’s Risk Premia indexes. They include the following and have a combined total of roughly $5 billion in assets:

• iShares MSCI USA Quality Factor ETF (QUAL | A-80)
• iShares MSCI USA Value Factor ETF (VLUE | B-85)
• iShares MSCI USA Momentum Factor ETF (MTUM | A-58)
• iShares MSCI USA Minimum Volatility ETF (USMV | A-64)

iShares also has a similar lineup of low-volatility ETFs, including the following, which have nearly $5 billion in assets:

• iShares MSCI Emerging Markets Minimum Volatility ETF (EEMV | B-60)  
• iShares MSCI All Country World Minimum Volatility ETF  (ACWV | A-60)
• iShares MSCI EAFE Minimum Volatility ETF (EFAV | B-49)

Meanwhile, SSgA is building out its family of international ETFs based on the MSCI Quality Mix indexes, which combine the quality, value and low volatility factors, with a U.S. fund in registration.

The methodology of the Deutsche X-trackers Multifactor funds will combine the momentum, value, quality and low-volatility factors.

Factor-based investing—an offshoot of the smart-beta trend—has come into focus in the past year, with the decision of the Arizona State Retirement System to seed four of the iShares U.S. factor ETFs with $100 million each putting the approach on the radar of a far wider range of investors. SSgA followed quickly on iShares’ heels, and now it looks as if Deutsche Bank will be staking out its own territory in the space.

With “plain-vanilla” exposures well-covered in the equity ETF space, new twists and approaches on traditional asset classes are places where ETF providers can differentiate themselves.

An Unhedged Japan ETF
The Deutsche X-trackers Japan ETF is interesting because it has no currency hedge. Deutsche Bank already has a currency-hedged Japan fund, the Deutsche X-trackers MSCI Japan Hedged Equity ETF (DBJP | B-70), as well as similar funds tracking Brazil, Germany, South Korea, Mexico and the United Kingdom, in addition to a handful of regions.

But this isn’t just an unhedged version of DBJP, which is tied to an otherwise plain-vanilla MSCI country index; the proposed fund would track what looks to be an in-house benchmark with a smart-beta twist, though the current prospectus does not include an in-depth explanation.

The index selects its components from the Jasdaq stock exchange and certain sections of the Tokyo stock exchange based on return on equity, cumulative operating profit and current market value, including the highest-scoring companies in those three areas, the prospectus said.

DBJP has accumulated more than $600 million in assets under management since its June 2011 launch.

New Flavor Of Convertible Bond Fund
Deutsche has also filed for its own convertible bond ETF, which will be similar in focus to the nearly $3 billion SPDR Barclays Convertible Securities ETF (CWB | C). However, the Deutsche X-trackers Contingent Convertible Bond ETF will have some key differences.

Contingent convertible securities, or “CoCos,” require a company to undergo some sort of decline in value that crosses a set threshold—either a market event or an accounting value, according to the prospectus—before any sort of conversion takes place. The prospectus notes that such securities are designed to absorb losses, and depending on the security, crossing the designated threshold will either result in a conversion to common shares or a full or partial principal write-down.

The prospectus notes that investors who see their fixed income investment converted to shares of stock could lose income from dividends and see their holdings become even more subordinated should the company go into bankruptcy. Securities that convert to equity holdings are removed from the index.

The ETF would be the first of its kind to list on U.S. markets.

Hedged Sector Equity Funds
In yet another filing, Deutsche Bank indicates that it is looking to add to its lineup of currency-hedged funds, but not with the introduction of another country or regional fund. Rather it has filed for a currency hedged ETFs covering the global infrastructure and international real estate sectors.

The Deutsche X-trackers International Real Estate Hedged ETF will cover real estate companies domiciled in Australia, Austria, Belgium, Brazil, Canada, France, Hong Kong, Italy, Japan, Malaysia, the Netherlands, New Zealand, the Philippines, Poland, Singapore, South Africa, Sweden, Switzerland, Thailand, Turkey and the United Kingdom, according to the prospectus.

Meanwhile, the Deustche X-trackers Global Infrastructure Hedged ETF will target infrastructure companies in the following markets: Australia, Brazil, Canada, Chile, China, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Norway, Russia, Singapore, Spain, the United Kingdom and the United States. Interestingly, the filing identifies all of the countries in that list as “developed” markets, even though many of them—like China and Mexico, for starters—are traditionally considered emerging markets.

None of the filings included expense ratios or tickers; however, all of the funds are slated to list on the NYSE Arca.