Deutsche Asset & Wealth Management (Deutsche AWM), the asset manager behind the db X-trackers brand of exchange-traded funds, has launched the db x-trackers Barclays USD Corporate Bond UCITS ETF that aims to provide exposure to the US dollar-denominated liquid corporate bond market.
Deutsche AWM unveils US dollar corporate bond ETF which avoids bonds with possible liquidity issues.
“With yields on many short maturity major government bonds now in negative territory, which means investors are effectively paying to own these bonds, there is a demand for fixed income exposure that generates a reasonable yield. Our new US dollar corporate bond ETF helps meet that demand,” said Michael Mohr, head of exchange-traded product development, EMEA, at Deutsche AWM.
The fund seeks to track the Barclays USD Liquid Investment Grade Corporate Index which is comprised of close to 1,500 bonds, over 80% of which have been issued by US-domiciled companies. The index targets specific maturity, credit quality, and liquidity requirements. In determining liquidity, the index methodology focuses on the dollar amount outstanding of each issue, with a minimum cutoff of $1bn for the Liquid index. In comparison, the Barclays Corporate Bond Index has a lower minimum cutoff of $250m.
Liquidity in the bond market has been a point of concern for market participants since the global financial crisis as increased bond issuance has combined with lower trading volumes (the result of regulations impeding banks’ from holding bonds on their balance sheets). The Securities and Exchange Commission’s recent proposals to enhance effective liquidity risk management by fund managers further highlights the issue’s importance.
The average credit rating of bonds in the index is investment grade (at least Baa3 from Moody’s, BBB from Fitch Ratings, or BBB- from Standard & Poor’s) and as of 4 October 2015, the index yield was 3.69%.
The ETF has listed on the Deutsche Börse and will shortly list on the London Stock Exchange. The total expense ratio is 0.2% per annum.