Deutsche Bank’s ETF arm – db X-trackers - plans to launch a handful of physical replication ETFs in the coming weeks, according to well-informed Deutsche Bank sources. This move comes just a few weeks after its close competitor, Lyxor, announced a similar move. Sources say that db X-trackers plans to launch these funds in November.
According to Deutsche Bank sources, the first round of new launches will feature physical replication ETFs which already have a synthetic replication version available for investors. In the coming weeks, physically replicated ETFs tracking the DAX 30, S&P 500, FTSE 100 and the Nikkei 225 indices, amongst others, will be launched. The plan is for Deutsche Bank to offer two distinct, parallel product ranges: the existing swap-based ETFs and a parallel set of products physically tracking benchmark indices, according to sources.
Emerging market fixed income ETFs will not be launched this year, going against what had been initially communicated by a Deutsche Bank representative.
Deutsche Bank’s realignment of its ETF business may have been spurred by the rapidly changing regulatory environment. Swap-based ETFs in particular have been repeatedly scrutinised and criticised by national and international regulators over the past 18 months. Deutsche Bank probably does not want to run the risk of missing out on the promising future growth of the ETF industry due to regulatory shocks.
Furthermore, db X-trackers could be realigning its product offering because of the restructuring of Deutsche Bank’s asset management division. Going forward, the ETF business will be part of the asset management division and no longer integrated into the investment banking arm. This means that the door is now open for ETFs to be distributed via channels that were previously only used for actively managed funds. In the future, these index funds will probably take their place next to Deutsche’s DWS investment products which are sold to individual investors. According to insiders, the current swap-based ETFs are difficult to distribute, while the demand for easy-to-understand physical products has grown stronger. Deutsche Bank seems to be working to adapt to changing internal corporate dynamics and external market dynamics.
A spokesman at Deutsche Bank declined to comment on the new business model of db X-trackers ETF business.
Just weeks ago, Société Générale’s subsidiary, Lyxor, announced the launch of its first physical replication funds.
In its press release, Lyxor stated that the soon-to-be-launched physical replication ETFs would focus on fixed income indices and not likely venture into equity indices anytime soon.