DWS has launched the Xtrackers II USD Emerging Markets Bond UCITS ETF (XUEM GY) on Xetra, providing exposure to investment grade and high yield emerging market bonds denominated in US dollars.

DWS launches Xtrackers emerging markets bond ETF.

The fund tracks the FTSE Emerging Markets Government and Government-Related Select Bond Index using direct physical replication through an optimised sampling methodology. The index is composed of bonds issued by governments, regional governments, or government-related entities from emerging market countries.

A country is considered as emerging if it meets two criteria. Firstly, it must be classified by the International Monetary Fund World Economic Outlook as one of the “emerging and developing economies” or be classified by the World Bank as one of the “low-income economies”, “lower-middle-income economies”, or “upper-middle-income economies”. Secondly, it must have a GNI per capita below twice the World Bank “high-income economies” threshold.

Bonds must have a minimum time to maturity of three years to be initially included, and have at least two years remaining to maturity to stay within the index. Bonds must have a minimum credit rating of C. Additionally, a cap of $25bn on the maximum par amount considered per country is also applied.

The index is currently yielding 5.4% and has an effective duration of 7.6 years. The largest country exposures are Indonesia (6.3%), Mexico (6.0%), Argentina (5.9%), Turkey (5.8%), and Russia (5.4%).

A large portion of the index’s credit exposure is concentrated around the lower end of the investment grade spectrum – bonds rated BAA1 (7.9%), BAA2 (17.2%), and BAA3 (16.5%). Most of the remaining exposure is in bonds with high yield ratings.

The fund has a total expense ratio (TER) of 0.35%. Income generated within the fund’s portfolio is distributed to investors.

DWS already has a euro-hedged version of the above ETF – the Xtrackers USD Emerging Markets Bond UCITS EUR Hedged ETF (XEMB GY) – which was launched on Xetra in May 2008. The fund has €270 million in assets under management and costs slightly more than its unhedged counterpart with a TER of 0.40%.