Fresh off its recent successes and new product in the hedged currency world, Deutsche Bank’s ETF division looks to expand again. This time though, the company will be hitting domestic markets, offering up exposure to municipal bonds and utilities, marking firsts for the rapidly expanding ETF issuer.
However, both of these products look to face stiff competition from a number of entrenched competitors so it could be a tough road to build up assets. Still, thanks to some differentiation, these two could be of interest to those looking to make a play on the space, suggesting that investors interested in these sectors should consider the following options as well:
db X-trackers Regulated Utilities Fund: UTLT
This product looks to track the DBIQ Regulated Utilities Index which is a benchmark that holds about 60 stocks in the regulated utilities space. A company is considered to be in this segment if its ancillary, non utility businesses are/or unregulated utilities business does not represent more than 25% of the company’s EBITDA.
The ETF will have a global focus so companies from around the world that meet the above stipulations will be included. This results in a lineup that is primed for income-oriented investors seeking a new option in the utility market, as the index dividend yield comes in at about 3.8% (read Utilities ETFs Slump on Downgrades).
In terms of companies, National Grid and Dominion Resources take the top two spots in the index, holding a combined 10.2% of the fund. Meanwhile for countries, the U.S. accounts for the bulk of the assets at about 72% of assets, followed by the UK (8.2%) and Canada (7.3%).
Utility ETF Competition
Fortunately for this ETF, no other fund targets the ‘regulated utilities’ space in particular, so there is some uniqueness from this respect. However, there are about a dozen other funds in the segment, so there could be some significant competition for utility ETF assets.
Specifically, big name products like XLU and VPU, which both charge a fraction of the db X-tracker’s 45 basis point cost, could be big rivals. JXI also could be a tough foe, as this product has a global utilities focus, although it does charge a bit more at 48 basis points a year in fees.
db X-trackers Municipal Infrastructure Bond Fund: RVNU
This new ETF follows the DBIQ Municipal Infrastructure Revenue Bond Index, a benchmark that looks to track the returns of the U.S. long term tax-exempt bond market, focusing on infrastructure revenue bonds. The index has roughly 500 names in its basket, with a modified duration to worst of just under seven years.
The fund will charge investors 30 basis points a year in fees, focusing in on securities that have a credit quality of ‘AA’ or ‘A’. With the relatively high option adjusted duration of just under 10 years and its credit quality focus, the yield to worst for the index comes in at a respectable 3.2% (read The Forgotten Municipal Bond ETFs).
In terms of sectors, transportation bonds take up the lion’s share at around 42% of the total index, followed by water and sewer (25%), and then special tax bonds (13.5%). Top holdings are reasonably well spread out too, as no single security makes up more than 5.75% of the fund.
Muni Bond ETF Competition
Once again, there are a number of ETFs in this corner of the market, though none have a dedicated focus on bonds that have pledged revenue streams like the new db X-tracker product. Still, there are close to 30 products in the unleveraged muni market, so the fight could be tough.
Among the most popular ETFs in the muni bond world are MUB and SHM, as these have combined assets under management of roughly $5.4 billion. In terms of longer term securities which may be more direct competitors, investors can look to MLN or even ITM and GMMB in the medium and back end of the curve.
Both the utility ETF and muni bond ETF markets are rife with competition, including several billion dollar funds. This may make it relatively difficult for the db X-tracker products to break in and accumulate a decent following of their own, suggesting it could be slow going at first for these two (read Buy These 3 ETFs for Excellent Dividend Growth).
However, both of these funds have a bit of novelty to them, and do offer slightly different exposure profiles than what is already on the market. Hopefully for Deutsche Bank’s sake, investors in these markets will embrace these differences, and consider both of the new products as viable options in their respective sectors, allowing the db X-tracker lineup to grow even more in the months ahead.
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