Deutsche Bank’s db X-trackers, Europe’s second-largest provider of exchange-traded funds (ETFs), is to launch a range of physically-backed ETFs. The provider’s current line-up of ETFs is comprised entirely of swap-based products.

Thorsten Michalik, global head of db X-trackers

The new direct replication ETFs, which are scheduled to roll out from December and into 2013, will include the identifier ‘(DR)’ in their fund names.

The funds will sit alongside db X-trackers’s existing swap-based counterparts, allowing investors to choose their preferred method of replication.

Thorsten Michalik, global head of db X-trackers, said: “Investors will be able to go to a single provider and choose not only the type of market exposure they want, but also the type of tracking method they feel most comfortable with. Some client segments have shown a preference for direct replication, and as a provider we aim to meet that demand.”

He added: “In the five years since our launch in 2007, db X-trackers has become one of the leading ETF providers in Europe. Delivering replication choice to investors will play a key part in maintaining our leading position for the next five years.”

The provider follows UBS, which, for a limited number of markets, also offers investors a choice of physical or swap-based ETFs, and comes after similar moves from Lyxor, which recently said that it would convert a number its swap-based ETFs to the direct physical method, and Credit Suisse, which has over the past year converted the majority of its ETF range to the physical method.

The volte-face by these ETF providers, which until now have lauded the synthetic approach, reflect investor concern about the use of over-the-counter derivatives and the potential for losses relating to the counterparty risk associated with swap-based ETFs. This concern has resulted in investors pulling money out of swap-based funds in favour of physically-backed funds.