ETF Watch: Deutsche's New Funds To Hedge Against Rate Hike

(RTTNews) - Deutsche Asset & Wealth Management, a unit of German lender Deutsche Bank AG (DB) launched three exchange traded funds or ETFs on Tuesday that will hedge exposure to rising interest rates.

Deutsche Asset & Wealth Management or Deutsche AWM noted that the ETFs provide investors with exposure to U.S. dollar-denominated investment grade, high yield corporate and emerging markets sovereign, and a quasi sovereign debt.

The company added that its interest rate hedged ETFs allow investors to seek to mitigate the impact of rising rates while preserving desired bond exposures. The debut of these exchange-traded funds or ETFs come at a time when investors want to be sheltered against rising interest rates.

The three Deutsche AWM ETFs seek to mitigate the potential negative impact of rising Treasury interest rates by taking short positions in U.S. Treasury notes or bonds.

Investors, awaiting a probable interest rate hike by the Federal Reserve some time in the near future, are concerned that bond prices may fall with rising interest rates. Since yields are near historic lows, a rate hike by the Federal Reserve is expected to result in flow of money into new, higher yielding bonds.

The ETFs are listed for trading on the NYSE Arca under the following symbols - Deutsche X-trackers Investment Grade Bond - Interest Rate Hedged ETF (IGIH), Deutsche X-trackers High Yield Corporate Bond - Interest Rate Hedged ETF (HYIH) and Deutsche X-trackers Emerging Markets Bond - Interest Rate Hedged ETF (EMIH). The ETFs all began trading on March 3.

Fiona Bassett, Head of Deutsche AWM's Passive Business in the Americas, said, "We designed IGIH, HYIH and EMIH as tools for managing duration, a source of both risk and potential return that can be dialed up and down using this new product suite. This feature may be particularly appealing as investors seek to mitigate solutions for reducing the interest rate sensitivity of their bond portfolios in anticipation of rising rates."

The Deutsche X-trackers High Yield Corporate Bond - Interest Rate Hedged ETF or HYIH holds 67 issues across four countries.

The Deutsche X-trackers Investment Grade Bond - Interest Rate Hedged ETF or IGIH is made up of 85 issues and seeks income through exposure to investment-grade corporate bonds across eight countries. It includes issues from Bank of America (BAC), Wal-Mart (WMT) and Goldman Sachs (GS).

The Deutsche X-trackers Emerging Markets Bond - Interest Rate Hedged ETF or EMIH provides exposure to 50 emerging-market debt issues across 29 countries, with Poland and Peru the top weighted countries at almost 12 percent each.