The new fund, db x-trackers iBoxx Eurozone Sovereigns Quality Weighted UCITS ETF (DR), listed on the Deutsche Börse today. The ETF tracks a new index -the Markit iBoxx EUR Eurozone Sovereigns Quality Weighted Index. It is a physical replication fund and has an annual all-in fee of 0.20%.
The quality-weighted fund marks Deutsche’s entry into the fixed income strategic beta market. It provides exposure to an index of Eurozone sovereign bonds that have been weighted based on criteria that focus on providing higher exposure to better quality issuers.
Bonds are selected according to a quality adjustment methodology that underpins the index and involves grading sovereign issuers based on a series of fundamental measures. These include unemployment, inflation rate, history of default, sovereign debt as a proportion of GDP, GDP growth rate and global competitiveness of the country.
By weighting based on fundamental factors, the quality index intends to counteract the tendency for fixed income benchmarks to weight in favour of the most indebted issuers. Countries that are currently over-weighted in the quality benchmark include Germany and the Netherlands, while Italy and Spain are under-weighted in the quality benchmark.
“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,” he added.
