Deutsche Bank’s exchange traded fund platform, db X-trackers, has launched an ETF that provides exposure to an index of liquid sterling denominated corporate bonds.
The db x-trackers II iBoxx GBP Liquid Corporate 100 Index ETF provides exposure to up to 100 sterling denominated corporate bonds that have been screened for liquidity.
To qualify for the index all eligible bonds must have a remaining time-to-maturity of at least two years and a minimum amount outstanding of GBP400m.
By using a corporate bond index weighted in favour of liquidity, replication of the index performance can be achieved efficiently and with more certainty than using an index that could have illiquid underlying components.
Using its swap-based replication method, Deutsche Bank is therefore able to deliver the exact returns of the index to the ETF.
“There has been strong demand for corporate debt exposure this year, so having this liquid, low cost access tool will be useful for investors,” says Manooj Mistry, head of db X-trackers for the UK.
“We’ve developed our sterling corporate bond ETF to provide investors with the exact returns of the index minus the fixed total expense ratio. This is a big advantage on traditional corporate bond ETFs, where the investor has to accept tracking difference risk, which can be substantial because of the potentially illiquid nature of the underlying.”