Today Deutsche Bank has launched two funds that offer slightly different exposures to the non-USD-denominated international bond market. The Deutsche X-trackers Barclays International Corporate Bond Hedged ETF (IFIX) and the Deutsche X-trackers Barclays International Treasury Bond Hedged ETF (IGVT) cover the corporate and government bond spaces, respectively, and come with expense ratios of 0.30% and 0.25%.
IFIX tracks the Barclays Global Aggregate Corporate Ex USD Bond Index (USD Hedged), which covers 3,450 bonds denominated in 18 different currencies from 732 different issuers in developed and emerging markets. Meanwhile, IGVT tracks the Barclays Global Aggregate Treasury Ex USD Issuer Diversified Bond Index (USD Hedged); it covers 1,093 bonds from 37 different issuers and denominated in 23 different currencies. Both underlying indexes require that components have at least one year of remaining maturity and meet minimum size requirements in their local currency, the prospectuses said.
The funds are being positioned as products that can be used in tandem if the investor chooses, but also as “add ons” to enhance a broad aggregate bond allocation. Each fund launched on the Bats exchange, which owns ETF.com.
“If you have an allocation to an aggregate bond exposure, you can use our two products to dial up or dial down, respectively, the corporate and the government exposures in line with your asset allocation designs,” said Arne Noack, a director with Deutsche Asset Management’s Exchange Traded Product Development team. He notes that while the two products have some correlation with each other, they cover substantially different markets and offer returns affected by very different risk factors.
Vanguard offers the currency-hedged Vanguard Total International Bond ETF (BNDX) at a price of 0.15%, and iShares offers the very similar $188 million iShares Core International Aggregate Bond ETF (IAGG) for an expense ratio of 0.11%. However, BNDX and IAGG cover corporates and government debt, meaning they lack the flexibility offered by Deutsche’s pairing of IFIX and IGVT.
And although fixed-income ETFs are not always currency hedged, both IFIX and IGVT do offer that feature as well, which Noack describes as “critical.”
“Very simply, if as a investor with USD liquidity, I buy a bond denominated in euro and I do not hedge the currency, I do not have fixed income; I have variable income. For example: If I’m a U.S.-based investor and I buy a BMW bond and do not hedge the currency, every single coupon I receive, including the repayment at the bond’s maturity, will be subject to the FX rate that prevails at the time. In order to preserve the fixed-income nature of my bond investment, I have to hedge my currency exposure,” Noack added.
State Street does offer separate exposure to corporates and government debt, but neither the SPDR Barclays International Treasury Bond ETF (BWX) nor the SPDR Barclays International Corporate Bond ETF (IBND) are currency hedged. Plus, both BWX and IBND come with expense ratios of 0.50%, 15-20 basis points more than the Deutsche Bank ETFs.
State Street Launches Ex-Fossil Fuel Int’l Funds
State Street Global Advisors has rolled out a pair of ETFs based on major MSCI indexes that screen out companies that own fossil-fuel reserves. The SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX) and the SPDR MSCI EAFE Fossil Fuel Reserves Free ETF (EFAX) track modified versions of the MSCI Emerging Markets Index and the MSCI EAFE Index, respectively.
The fossil fuels reserves are associated mainly with coal, oil and natural gas.
Both funds launched on the NYSE Arca. EFAX charges 0.20%, while EEMX comes with an expense ratio of 0.30%.
Contact Heather Bell at [email protected].