Deutsche Asset & Wealth Management (DeAWM) has unveiled the db X-trackers Solactive Investment Grade Subordinated Debt ETF (SUBD), an NYSE Arca-listed exchange-traded fund offering investors uncomplicated access to investment grade subordinated bonds
Deutsche Asset & Wealth Management has launched an investment grade subordinated debt ETF on the NYSE Arca.
The ETF, the first of its kind in the US, provides exposure to bonds which have the potential to produce higher yields than equivalent unsubordinated bonds and may provide attractive returns to investors capable of taking on additional risk.
Subordinated securities are subordinated or “junior” to more senior securities of the issuer and are entitled to payment after other holders of debt in that issuer. Junior subordinated securities generally rank slightly higher in terms of payment priority than both common and preferred stock of an issuer, but rank below other subordinated securities and debt securities.
Fiona Bassett, DeAWM’s Americas Head of Passive Asset Management, said: “Our goal for the db X-trackers suite of products has always been to offer investors the means to easily gain exposure to various investment opportunities. With the addition of SUBD to our platform, we continue to bolster our fixed income offerings, growing the number of investment options available.”
The fund is linked to the Solactive Subordinated Bond Index, a rules-based, market value-weighted index designed to track the investment grade, subordinated corporate bond market of US dollar-denominated corporate securities classified as subordinated or junior subordinated. In order to be added to the index, a bond must have an amount outstanding of at least $500 million and a remaining maturity of at least one year. The index may include bonds issued by issuers located outside the US including emerging markets. As of April 30, 2014, the Index is comprised of 137 constituents representing approximately 70 parent companies with $169 billion in total amount outstanding.
By tracking subordinated, investment grade debt, the fund is designed to provide higher yields via bonds of investment grade companies. The higher yields are produced by the subordinated nature of the bonds rather than by using junk bonds. The fund will be subject to marginally higher credit risk due to its investments in subordinated debt.
Astrid Ludwig, Head of the Bond & Complex Team at Solactive, said: “We are excited to support Deutsche Asset & Wealth Management as they launch another innovative fund tracking a Solactive branded index. In a context of historically low interest rates, the Solactive Subordinated Bond Index is tracking a market which offers an interesting compromise between yield and risk.”
The fund has an expense ratio of 0.45%.
DeAWM’s US exchange-traded products (ETP) platform includes 64 ETPs, with approximately $11 billion in assets under management. The platform was launched in 2006 and has risen to become the second largest ETP provider in Europe and the fifth largest in the world, with approximately $63 billion in assets under management as of December 31, 2013.