Investors in exchange-traded funds (ETFs) typically do not rely on a single provider, but if they did, they could do a lot worse than the db X-trackers series, which has proven particularly popular as Deutsche Asset & Wealth Management (AWM) has enhanced its range of products and cut fees.
"In the past year the db X-trackers offering has improved immensely, particularly in terms of fees," says Lynn Hutchinson, assistant director and fund analyst at London-based Charles Stanley Pan-Asset. She cites a reduction in total expense ratios and the appearance of more useful physically replicated products as key highlights.
Deutsche AWM has proved its commitment to the ETF sector in the past year with several new products. The launch of its smart beta ETF range in October 2014 is one example, with clients praising the choice of currency-hedged and fixed-income products and the number of physically replicated ETFs on offer. Above all, they were impressed by the provision of access to certain markets and exposure types not available elsewhere.
Many investors tend to favour physical replication, whereby the ETF manager buys and sells the underlying securities rather than replicating them synthetically with derivatives. Recognising this preference, Deutsche AWM launched a core range of physically replicated ETFs in early 2014 and has been steadily adding to it since then. It is the only provider offering a physical equal-weighted ETF on the FTSE 100 - launched in August 2015 - and is the only European firm to do so on the S&P 500.
"Interestingly, there are not many equal-weighted ETFs out there, even for the main benchmarks," says Michael Mohr, head of exchange-traded product business development for Europe, the Middle East and Africa at db X-trackers in Frankfurt.
In the past year the db X-trackers offering has improved immensely, particularly in terms of fees
Deutsche AWM also won plaudits for its range of products offering short exposure, which clients found particularly useful during periods of heightened market volatility this year.
"There are competitors in the equity short-exposure space, but in terms of breadth of offering, Deutsche is the leader in Europe," says Richard Foley, investment manager at London-based wealth management firm WH-Ireland. "It's very useful to have options in that area that other providers, on the whole, don't offer."
Foley cites ETFs that give short exposure to France's CAC 40 index and similar products for specific sectors such as European banks or healthcare as examples of these unique products. WH-Ireland has made more use of such products over the past year, including versions with leverage.
Demand for currency-hedged ETFs has also been on the rise as volatility in the global forex market picked up in 2015, and this is another area where Deutsche AWM boasts a unique and growing repertoire. Charles Stanley's Hutchinson employed an ETF - launched in March 2015 - that tracks a sterling-hedged version of the JPX-Nikkei 400 index. At the time, the db X-trackers product was the only one that was physically replicated.
Meanwhile Asian, British or Swiss investors might want exposure to European stocks but not to the euro, says Mohr. They have been obtaining this through products such as the dollar-hedged version of the db X-trackers MSCI Europe Index Ucits ETF, which launched in February and has attracted €135 million ($153 million) in net new assets since then.
It's a similar story when it comes to accessing countries and regions outside Europe. Few providers can match Deutsche AWM's choice of emerging market ETFs, which track a range of markets including India and Thailand. Clients single out offerings such as the Harvest CSI300 ETF, which delivers access to Chinese stocks, as being particularly valuable. And db X-trackers is recognised as a pioneer in Europe when it comes to China-focused ETFs, at least partly thanks to its partnership with Beijing-based Harvest Fund Management.
Moreover, in February, Deutsche AWM listed Europe's first ETF giving access to the equity markets of Gulf Cooperation Council (GCC) states, including Saudi Arabia. The product has a 62% weighting to Saudi Arabia, which is by far the largest GCC market.
Fixed-income ETFs have also seen strong flows, and here again clients say the db X-trackers series boasts products that cannot be found elsewhere. An ETF that tracks the widely used Barclays Global Aggregate bond benchmark - the first of its type to list globally - has attracted €548 million in assets since its launch in March 2014.
In January, Deutsche listed the world's first shorter-maturity (one-to-three-year) euro-denominated high-yield corporate bond ETF. And in July, it launched Europe's first ETF to provide exposure to China's domestic sovereign bond market.
Beyond the wide range of new product launches, a drop in total expense ratios for certain ETFs in Deutsche AWM's core range has also been well received. The FTSE 100 ETF's ratio, for example, fell from 30 basis points in February 2014 to 9bp, while the ratio on its Dax ETF dropped from 15bp to 9bp.
On top of all this, clients point to the extensive research offered on ETF flows, the access to Deutsche AWM's capital markets team and the firm's attentive customer service. "The information they provide is getting better all the time," says WH-Ireland's Foley. "Their provision of market analysis and comment has stepped up a big notch over the past 12 months."
The week on Risk.net, September 8-14, 2018Receive this by email