Deutsche Asset & Wealth Management unveiled two exchange-traded funds Tuesday that are the first devoted entirely to infrastructure revenue bonds and regulated utilities.
The passively managed ETFs, called db X-trackers Municipal Infrastructure Revenue Bond Fund and the db X-trackers Regulated Utilities Fund, are both listed on NYSE Arca.
The former fund is the only 100% infrastructure-revenue-bond ETF, according to Timothy Strauts, a senior fund analyst, passive funds research, at Morningstar, Inc., while the latter is the only one with 100% regulated utilities exposure.
The two products “are designed to continue on with our aim of providing investors with exposures and views on the market that have not previously been expressed by other issuers,” said Martin Kremenstein, the firm’s head of passive asset management in the Americas.
The revenue bond ETF tracks the firm’s DBIQ Municipal Infrastructure Revenue Bond Index, a proprietary index of long-term U.S. tax-exempt bonds that focuses on investment-grade bonds issued for infrastructure purposes and backed by dedicated revenue streams. The index includes more than 500 constituents representing about 150 unique municipal obligors with approximately $73 billion in total market value, according to Deutsche Asset.
The index includes large revenue bond issuers who provide liquidity, said Ashton Goodfield, portfolio manager and head of municipal bond trading at the firm.
“So, not only are they investment grade, which are typically more liquid, but the Cusip size is generally over $40 million, and many of them are over $100 million, so very liquid positions in this bond,” Goodfield said.
Digging into the index’s numbers shows that as of April 30, the yield-to-worst was 3.22%, with a modified duration-to-worst of 6.95 years.
“By nature of the fact that these are revenue bonds, which are typically issued in longer maturities, this fund will have a longer maturity,” Goodfield said. “These bonds typically are high coupon and priced to a call, a structure that we favor in other portfolios that we manage.”
The utility ETF tracks the firm’s DBIQ Regulated Utility Index, a proprietary index of regulated utility companies from developed international markets.
A regulated utility is a company that’s allowed by a regulatory body to earn a rate of return on its investment whether in strong or weak economic climates, said Frank Greywitt, portfolio manager and co-head of global infrastructure securities. The utility ETF a regulated utility fund that allows for the potential return of equity, but with lower volatility in potential fixed income, he added.
“Currently, we expect that this fund will yield a little bit over 3.5%,” Greywitt added. “This is due to the stable cash flows and the very low volatility that these companies display.”
Of the fund’s constituent companies, 85% have a $5 billion market capitalization, or higher. Also, there are about 61 securities, with an average market cap is about $22 billion.
Deutsche positions the utility ETF as a very low-beta equity, or perhaps as a complement to a fixed income portfolio for investors who want to diversify away from bonds and into equities, Greywitt said.
Deutsche Asset & Wealth Management’s U.S. exchange-traded products include 23 ETFs and 32 exchange-traded notes, with approximately $11.6 billion in assets under management.
The firm launched it’s ETP platform in 2006. Since, it has grown to become the second largest ETP provider in Europe and the fifth largest in the world, with approximately $63 billion in assets under management as of May 24.