Deutsche AWM Launches 3 New Interest Rate Hedged Bond ETFs

Deutsche Asset & Wealth Management has made a name for itself in the ETF world with its unique suite of China A-share and currency-hedged investment portfolios. Now, the company is expanding its reach to include a new line of interest rate hedged bond ETFs as well. On Tuesday, the company announced the release of the following funds, which are currently trading on the NYSE Arca exchange: Deutsche X-trackers Investment Grade Bond – Interest Rate Hedged ETF (IGIH) Deutsche X-trackers High Yield Corporate Bond – Interest Rate Hedged ETF (HYIH) Deutsche X-trackers Emerging Markets Bond – Interest Rate Hedged ETF (EMIH) With interest rates near historic lows and the Federal Reserve contemplating a rate hike in 2015, fixed-income investors may be looking for new ways to mitigate the risk of price declines in their portfolios. These new funds accomplish this feat by holding short positions in U.S. Treasury futures alongside a traditional basket of corporate or emerging market bonds. The goal is to significantly reduce or eliminate the effect of interest rate fluctuations on the underlying basket of bonds in a rising rate environment. Conversely, these three funds would underperform a comparable unhedged bond ETF in a falling interest rate environment. Dodd Kittsley, Head of ETF Strategy at Deutsche AWM, noted that "Traditional strategies for addressing interest rate risk include shortening duration or shifting into different asset classes, which lower exposure to interest rate risk but also reduce exposure to the risk and compensation of credit. Interest rate hedged ETFs allow investors to seek to mitigate the impact of rising rates while preserving desired bond exposures. On a standalone basis or in conjunction with other fixed income holdings, these ETFs could prove a powerful tool for risk management." Trillions of dollars in fixed-income assets will be susceptible to changes in U.S. monetary policy over the next several years and these new ETFs offer the ability to control an important risk dynamic. IGIH and HYIH will compete head to head with the ProShares Investment Grade—Interest Rate Hedged ETF (IGHG) and ProShares High Yield—Interest Rate Hedged ETF (HYHG), which have been available since mid-2013.