Deutsche AWM launches first equal-weight FTSE 100 ETF

Aug 17th, 2015 | By | Category: Equities

Deutsche Asset & Wealth Management (Deutsche AWM), the asset manager behind the db x-trackers brand of exchange-traded funds, has launched the db x-trackers FTSE 100 Equal Weight UCITS ETF (XFEW LN), providing exposure to an equal-weight version the FTSE 100 Index.

Deutsche AWM launches first FTSE 100 equal-weight ETF

DeAWM has listed the first ETF to provide equally-weighted exposure to the FTSE 100 index constituents.

This is the first ETF to offer access to an equally weighted portfolio of the largest 100 companies by market capitalisation listed on the London Stock Exchange (LSE).

Equal-weight products based on other major indices, such as the Guggenheim S&P 500 Equal Weight ETF linked to the S&P 500, have existed for over a decade in the US and have attracted considerable assets, making this a long-overdue product for the UK and wider European market.

The fund tracks the FTSE 100 Semi Annual Equally Weighted Index and is comprised of the same constituents as the market capitalisation-weighted FTSE 100, informally known as the “Footsie”; however, each company is given an equal weighting of 1% at the semi-annual rebalance.

Equally weighted strategies avoid one of the potential flaws in market cap-weighted indices, namely increasing allocation to a company’s stock as its price and therefore valuation increases. As a result, market-cap-based strategies can lead to concentrated positions in stocks which may be overvalued. In comparison, an equal-weighted strategy tends to bias portfolio exposures towards companies which offer value characteristics as well as smaller cap companies. These portfolio tilts have historically provided investors with excess returns.

“Removing the large-cap bias effectively increases the weighting to the smaller cap companies in the index, which may improve the risk-adjusted performance over the long term,” said Michael Mohr, Head of Exchange-Traded Product Development, EMEA, at Deutsche AWM.

An equal-weighted approach is arguably the most straightforward alternative to market capitalisation-weighted indices and falls with the alternative or smart beta sphere, which generally aim to improve risk-adjusted returns. According to Deutsche AWM: “Between December 2004 and May 2015 an equal-weight version of the FTSE 100 Index would have outperformed the capitalisation-weighted version by 2.6% per annum.

The FTSE 100 is the main indicator for the performance the largest eligible companies listed on LSE and has a combined market capitalisation of approximately £1.8 trillion, as of 14 August 2015.

Commenting on the announcement, Sudir Raju, Managing Director of ETP EMEA, FTSE Russell, said: “FTSE Russell is delighted that Deutsche Bank has chosen to license one of our indexes for its new London listed ETF. We continue to develop a range of variants on our more established benchmarks, such as the FTSE 100 or Russell 2000, which ETF providers can use in building their different investment solutions. This results in greater choice for the end-user.”

The ETF has been listed on the LSE and has an annual all-in fee of 0.25%.

Tags: , , , , , , , ,

Leave a Comment