Deutsche Asset Management has deployed the Barclays Global Aggregate Bond Index in the form of a GBP-hedged share class of one of its most high profile fixed income exchange traded funds (ETFs), db x-trackers II Barclays Global Aggregate Bond Index Ucits ETF, which provides indirect replication exposure to the investment-grade global bond market.
The ETF, launched in March 2014, has over £500m in assets and is the first to track the Barclays Global Aggregate Bond index. SRP data shows that the Barclays Global Aggregate Bond index has not been used as underlying for structured products although the Barclays US Aggregate Bond index has been deployed across 72 products mainly in the US market, Canada and Sweden, of which 38 are still live.
This is another example of Deutsche's commitment to providing special strategies for UK /GBP domiciled investors in the form of building blocks to be used in investors' portfolios, according to Michael Mohr (pictured), Deutsche Asset Management's head of exchange traded product development, Europe, Middle East & Africa (Emea). "The Barclays Global Aggregate Bond Index is one of the main fixed income indices out there, and enables investors to buy into over 15,000 securities - the entire fixed income investment grade world," said Mohr. "Investors seeking broad exposure to developed world equities can invest in the MSCI World while those interested in getting exposure to the global investment grade fixed income market can deploy the Barclays Global Aggregate Bond Index. Combining them provides exposure to equities and fixed income with a balance of choice for investors."
According to Mohr, the GBP-hedged version of the index will be interesting for GBP domiciled retail investors but also for institutions, as "it provides the access without investors having to factor in the hedging of around 24 currencies embedded in the index".
The Barclays Global Aggregate Bond Index is a flagship benchmark of global investment grade debt from twenty-four local currency markets, which means sterling-denominated investors in products tracking the index have currency risk as well as bond risk, said Mohr. The new share class hedges the multi-currency risk relative to sterling on a monthly basis. The index tracks the market for government, governmental, supranational, corporate, asset-backed and mortgage-backed securities across the full spectrum of maturities in the BBB to AAA credit rating range, and on a global basis.
The launch follows on recent success by Deutsche AM's fixed income ETF range and is aimed at providing alternatives to investors that fluctuate from one FX hedged share class to another depending on currency markets. "We have also seen investors having the benchmark in their portfolios but then use the hedged version to address the currency risk by switching from the unhedged to the hedged version of the index," said Mohr. "Some of the indices we use are deployed via ETFs or structured notes or certificates, but the vehicle used is more a choice of the end investor."
According to Mohr, ETFs provide a very cheap, transparent and liquid way to get exposure to assets, and some indices fit that purpose better, but other investors may prefer to have a less tactical exposure and might favour a different wrapper. "We believe the ETF wrapper is the wrapper of choice for big standard benchmarks because it adds value to the investment through its transparency, cost and daily liquidity," said Mohr. "In this case, the ETF also provides the means to hedge FX risk on a significant number of funds and currencies comprising the index."
Deutsche's ETF business leverages the bank's structuring capabilities to provide bespoke access and exposure to different strategies and investors, said Mohr. "The other leg of this launch is aimed at sending a signal about our determination to deliver investment solutions specifically targeted to clients in the UK market," said Mohr. "This is a very important market for Deutsche AM and we want to have a comprehensive offering and provide investment strategies that will appeal to UK investors."
The new GBP-hedged share class has been listed on the London Stock Exchange (LSE).
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