Deutsche launches smart beta EM equities ETF

Apr 26th, 2016 | By | Category: Equities

Exchange-traded fund provider Deutsche Asset Management has launched the Deutsche X-trackers FTSE Emerging Comprehensive Factor ETF (DEMG), which provides exposure to emerging market companies that have demonstrated relatively strong exposure to factors such as value, momentum, quality, low volatility and size.

Deutsche expands multifactor ETF suite with EM equities fund

Fiona Bassett, Head of Passive in the Americas for Deutsche Asset Management.

The ETF is the latest multifactor fund from the provider and will track the FTSE Emerging Comprehensive Factor Index. The ETF’s total expense ratio is 0.50%.

Fiona Bassett, Head of Passive in the Americas, said in a statement: “Emerging market equities may be an interesting opportunity for diversification or growth. Investors who believe emerging markets are poised to rebound may be interested in DEMG, which seeks to identify and overweigh relatively valuable, high-quality emerging market stocks, with relatively positive performance momentum and lower volatility.

“DEMG is an important addition to our suite of Comprehensive Factor ETFs, which is designed to help investors establish new efficient frontiers in their asset allocation. Our Comprehensive Factor ETFs are based on an intelligently designed index construction mechanism, taking into account five investment factors that are supported by robust academic research.”

“We are very excited to build on our relationship with Deutsche Asset Management by providing innovative new indexes to benefit their US ETF clients,” added Ron Bundy, CEO North America Benchmarks for FTSE Russell. “Our innovative global factor indexes are a growing and diverse set of tools to help investors better meet their objectives.”

Multifactor strategies attempt to increase portfolio risk-adjusted returns of by shifting focus from industry and country diversification to factor diversification. While an increasing amount of research is being published confirming that individual factor exposure may enhance Sharpe ratios compared to market cap-weighted approaches, there is a lack of compelling evidence supporting the most appropriate timing to adopt each exposure. As such, multi-factor strategies seek to provide access to at least one outperforming factor at any stage in the economic cycle while also smoothing returns compared to any single factor approach.

Part of Deutsche Asset Management’s comprehensive factor suite and launched in November 2015, the Deutsche X-trackers Russell 1000 Comprehensive Factor ETF (DEUS) and Deutsche X-trackers FTSE Developed ex US Comprehensive Factor ETF (DEEF) have both outperformed their market cap weighted benchmarks since inception. In Q1 2016, DEUS’s total return of 4.2% compared favourably to the 1.1% total return from the Russell 1000 Index. Similarly, DEEF delivered 1.0% over the same period, outperforming the market cap weighted FTSE Developed ex-US Index, which lost 0.4%.

As of 31 March 2016 the FTSE Emerging Comprehensive Factor Index has significant country exposures to South Africa (16.1%), China (15.5%), Taiwan (12.3%), Mexico (8.8%) and Brazil (8.4%). The major sector exposures are to financials (19.4%), industrials (17.0%), consumer services (13.2%) and consumer goods (12.6%).

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