db x‑trackers
Simply buy the market
Deutsche Bank Exchange Traded Funds (ETFs)
Contents
Introduction
3
db x‑trackers – a real solution Solution
4
ETFs offer institutional investors great new opportunities!
5
db x‑trackers – Efficient, Transparent, Flexible Success factors
6
Uses of db x‑trackers
8
Comparison of db x‑trackers to other alternatives
9
db x‑trackers product information Appendix
10 Important Information Contacts 12
Deutsche Bank ETF Sales,
Trading and Research Contacts
Contents
db x‑trackers – a real solution
db x‑trackers are Exchange Traded
This brochure provides further
Funds (ETFs), an index tracking
information on the key features
investment solution offered by
of the db x‑trackers ETFs and
Deutsche Bank.
demonstrates how institutional investors can use them.
ETFs combine the advantages of stocks (tradability and liquidity) and
The current range of db x‑trackers
mutual funds (diversification and
ETFs is shown in the enclosed
regulated infrastructure) into one
document entitled “db x‑trackers
product. With ETFs, it is possible
Product List”. This includes
to achieve exposure to a diversified
information on the relevant exchange
portfolio of securities in one instant
codes and product information on
transaction in the same way as
each ETF.
trading any other stock exchange listed security.
Further product information on db x‑trackers is also available
ETFs are an ideal long- and short‑
through the following sources:
term investment tool for institutional investors and provide a viable
Website: www.dbx-trackers.co.za
alternative to other instruments such
Hotline: 0861 111288
as futures. Institutional investors
E-mail:
[email protected]
such as pension funds, insurance companies, fund of funds, asset
The telephone numbers for the sales,
managers and corporate treasurers
trading and research contacts at
can use ETFs in a diverse range of
Deutsche Bank for ETFs are provided
investment strategies.
on the back cover of this brochure.
Over the last five years 30% of net inflows in the US fund industry have been into passive index tracking products, of which 68% has flowed into ETFs.
Introduction
ETFs offer institutional investors great new opportunities! Exchange Traded Funds (ETFs) have
A growing number of institutional
been a phenomenal global success
investors are using ETFs in their
since their introduction in the USA in
portfolios to benefit from a variety
1993 and this growth is forecast to
of strategy implementations (e.g.
continue. The average growth rate of
asset allocation, cash management,
ETFs assets globally has been 83%
core-satellite strategy or long‑short
over the last 12 years.
strategies or sector rotation). In the past year, the number of institutional
The graph below shows the growth
investors who declared holding
of the global ETF market since 1993.
US‑listed ETFs grew to 2,000 showing a rise of 65% over the last
Since the launch of the first ETFs
five years2.
in Germany in 2000, the European ETF market has developed rapidly. As of December 2007, the assets in European ETFs were EUR 89 billion with a daily average turnover of almost EUR 1.05 billion on the various stock exchanges across
1
Europe where ETFs are traded1.
2
Source: Deutsche Bank AG: „European Listed Exchange Traded Funds — ETF Liquidity Trends“, January 2008. Source: Thomson Financial.
Worldwide ETF Growth Euros billion
Number ETFs
550
1.100
500
1.000
450
900
400
800
350
700
300
600
250
500
200
400
150
300
100
200
50
100
0
0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Nov Number of ETFs Assets under Management Source: Deutsche Bank AG
Solution
db x‑trackers – Efficient, Transparent, Flexible The db x‑trackers ETFs are dynamic
Transparent
and unique investment instruments.
They combine the advantages of
Continuous Pricing – db x‑trackers
funds (diversification and regulated
trade on a stock exchange with
infrastructure) and stocks (tradability
continuous two way pricing
and continuous pricing) under a
commitments from Deutsche Bank
Collective Investments Scheme
and other market makers during
Control Act compliant fund framework.
exchange trading hours Transparent NAV – the intraday
With the db x‑trackers ETFs, it is
price of db x‑trackers can be
possible to achieve exposure to a
followed through the NAV (Net
diversified portfolio of securities in
Asset Value) which is calculated
one instant transaction in the same
and disseminated daily
way as trading any other equity listed on a stock exchange.
Flexible
The key benefits of the db x‑trackers
Intraday Trading – db x‑trackers
ETFs can be described in three
can be bought or sold on the
words – Efficient, Transparent and
stock exchange during normal
Flexible
trading hours in the same way as any exchange listed share
Efficient
Trading Size Flexibility – unlike other instruments such as futures,
Low Fees – db x‑trackers ETFs are
db x‑trackers can be traded
passive index tracking instruments
in small lot sizes. The unique
with low annual management fees
structure of ETFs such as
and total expense ratios (TERs)
db x‑trackers also allows them
Low Tracking Error – db x‑trackers
to be traded in large sizes without
ETFs are designed to closely track
causing any market impact
their benchmark index with
Multiple Investment Uses –
minimal tracking error and
db x‑trackers can be used by
performance leakage
institutional investors for a variety of investment strategies ranging from an intraday trading tool to forming the basis of long‑term asset allocation decisions
Solution
Uses of db x‑trackers
Institutional investors can use the
Cash management
db x-trackers ETFs for a variety of purposes and strategies. They
The convenience of continuous
can view the db x‑trackers as a
liquidity and tight trading spreads
highly flexible investment tool that
provided by market makers enable
provides index exposure. Below are
db x‑trackers ETFs to be an
some uses and strategies for the
attractive short‑term cash substitute
db x‑trackers ETFs:
for institutional investors. Fund managers can minimize “cash
Asset allocation
drag” in their portfolios by investing
Cash management
surplus cash in db x‑trackers ETFs
Core-satellite strategy
linked to a particular benchmark.
Trading strategies Derivatives alternative
Fund managers can “park” their
Performance enhancement
surplus cash balances in ETFs until
through securities lending
a long-term decision is made about
investing in specific securities.
Asset allocation Core-satellite strategy With an index tracking instrument such as an ETF, the diversification
ETFs such as db x‑trackers can help
aspect of the Portfolio Selection
to increase diversification within an
Theory devised by Harry M.
investment portfolio. For example, if
Markowitz in 1952 can be met
the mandate of an equity fund is to
simply and cost-effectively. Through
invest globally, it is possible to build
db x‑trackers, an exact index
a “core” equity portfolio (say 70% of
replication can be achieved (beta
the portfolio) by using a handful of
of virtually 1), so that the individual
db x‑trackers such as the ones linked
risk enclosed in single securities can
to indices tracking the USA, Japan
be diversified away. Additionally,
and Europe. The ‘core’ of ETFs
building a portfolio of ETFs with
provides a way to reduce the running
exposure to different markets (e.g.
costs of a portfolio without deviating
a variety of sectors, countries,
too much from the benchmark.
durations etc.) can help to diversify away sector or country or duration
The remaining part of the portfolio
specific risk.
(“the satellites”) can be actively managed through investment in selected equities or actively managed assets such as other ETFs or mutual funds. The aim here is to generate “alpha” through picking investments that will outperform the core portion of the portfolio.
Success factors
Trading strategies
Furthermore, db x‑trackers are available in smaller sizes and more
The fact that db x‑trackers are
flexible denominations compared to
listed on stock exchanges with
their futures counterparts.
continuous two way pricing gives fund managers the flexibility to react
As db x‑trackers are not classified as
in real time to market fluctuations.
derivatives, there may also be some
With db x‑trackers ETFs, you can
benefits to holding them from an
take advantage of both rising (long)
accounting point of view instead of
and declining (short) markets. It
holding futures or other derivatives.
should be possible to borrow ETFs to enable them to be sold short with
Performance enhancement
the intention to buy them back some
through securities lending
time in the future when prices have fallen.
Institutional investors can generate extra revenues for their portfolios
Derivatives substitute
by lending out their holdings of db x‑trackers ETFs to other market
db x‑trackers can be used as a
counterparties such as hedge
substitute for derivatives such as
funds. This can be a good way for
futures without being viewed as
institutional investors to reduce the
derivatives themselves. The use
cost of holding db x‑trackers.
of db x‑trackers does not require any documentation, margin or
Further information on the lending
collateral accounts associated with
out of db x‑trackers is available from
the use of derivatives. As ETFs are
Deutsche Bank (see contact list on
typically classified as open‑ended
the back cover).
mutual funds, there are no roll‑over costs like those of derivative transactions e.g. futures. In addition, db x‑trackers are a viable alternative for institutional investors that cannot use futures in their portfolios due to regulatory requirements or for their internal reasons.
Success factors
Comparison of db x‑trackers to other alternatives Risk profile
Futures
db x‑trackers ETFs
Swap
Securitized products
Roll risk
Yes
No
No
No
Tracking error
Depends on benchmark
Minimal
Minimal/No
Minimal/No
All
All
Money & Credit Markets
Index, Sector, Style
Index, Sector, Basket,
Index, Sector, Basket,
Single Stock
Single stock
(in Roll/Basis) Asset classes
Equities, Bonds,
Equities, Bonds,
Commodities
Property, Commodities,
Level
Index, Sector, Basket, Single stock
Funding
Margin
Fully funded
Possible margin
Fully funded
Settlement
Listed derivatives
Listed Stock Exchange
OTC
EuroClear
Exchange Credit risk
Central counterparty
N/A
Counterparty
Counterparty
Cash flow
Daily
No
Monthly/Quarterly
No
Dividends / Coupons
Included in price
Full payout /
Included in price
Mostly not included
included in price
Costs
Management fee
No
Yes
No
Yes/No
Financing costs
No (embedded in
No
Yes
No
Roll/Basis)
Source: Deutsche Bank AG. The table compares the key features of db x‑trackers ETFs with other index tracking alternatives available to institutional investors.
Success factors
db x‑trackers product information Structure
Dividends
db x-trackers are not available to US persons. Before investing in
The db x-trackers ETFs are sub funds
The db x-trackers track the
db x-trackers, prospective investors
of the db x-trackers Collective
performance of the benchmark index
are advised to take professional
Investment Scheme. The db x-trackers
on a price return basis (i.e. with a
advice on their status under US
Collective Investment Scheme and
distribution). Dividends are paid
Securities Law.
its sub-funds comply with the
semi-annually. Risk Warning
relevant Financial Services Board regulations relating to collective
Taxation Investors should note that the
investment schemes in securities, as amended from time to time. A
The taxation of investors holding
db x-trackers ETFs are not capital
copy of the offering circular for the
db x-trackers will vary according
protected or guaranteed and that
db x-trackers Collective Investment
to the country of domicile of the
the capital invested or its respective
Scheme is available from:
investor, type of investor (e.g.
amount are not protected or
[email protected].
insurance company, pension fund
guaranteed and investors in the
or private investor), the country
db x-trackers ETFs should be
of domicile of the db x-trackers
prepared and able to sustain losses
(Luxembourg) and whether it
of the capital invested up to a total
The annual management and running
complies with any local regulatory
loss. Investors will also bear some
fees are capped at a maximum
or tax reporting obligations.
other risks including, among others,
Fees
level for each db x-trackers ETF. This is called the “All In Fee” and
market, counterparty default and Availability
is disclosed in the “db x-trackers
illiquidity risk as described under the section “Risk Factors” in the offering
Product List”, the individual product
The availability of db x-trackers to
fact sheets for each db x-trackers ETF
institutional investors is subject to
and the respective offering circular of
local laws and regulations. The
the sub-fund.
db x-trackers website and fact sheet
circular.
includes the latest information on the The annual management fees are
jurisdictions where db x-trackers are
calculated on a sliding scale based on
authorized for public distribution.
AUM (Assets Under Management) and are disclosed in the individual product fact sheets.
Success factors
Important Information
Disclaimer
Index Disclaimer
© 2008 Deutsche Bank AG The information provided in this document does not constitute investment advice; its sole purpose is to provide a brief description of the product. You should be aware that certain transactions give rise to substantial risk. Product values may be affected by market values, interest rates, exchange rates, volatility, dividend yields and issuer credit ratings. These factors are interrelated in complex ways, and as a result, the effect of any one factor may be offset or magnified by the effect of another factor. Accordingly, certain transactions are not suitable or appropriate for all investors. You should take steps to ensure that you fully understand any transaction which you intend entering into and have made an independent assessment of the transaction in the light of your own objectives and circumstances, including the possible risks and benefits of entering into such transaction. You should also consider seeking advice from your advisers in making this assessment. This Document should not be considered as a recommendation by Deutsche Bank or any of its affiliates that the db x-trackers ETS are a suitable investment. db x-trackers may or may not be suitable for all investors. Deutsche Bank AG or any of its affiliates does not guarantee the performance of the db x-trackers. Past performance is no guarantee of future returns. The complete terms and conditions should be taken from the respective offering circular; this, and any supplements, may be obtained free of charge from Deutsche Bank AG or any of its affiliates. Any investment in a db x-trackers ETF should be made solely on the basis of the Listing Particulars. All statements of opinion reflect the current assessment of Deutsche Bank AG or any of its affiliates, which may change without prior notice. Although the information herein has been obtained from sources believed to be reliable, Deutsche Bank AG or any of its affiliates does not guarantee its accuracy, completeness or fairness. Deutsche Bank or any of its affiliates may make markets or hold units in the db x-trackers ETFs mentioned in this document or hold positions in the investments in which the db x-trackers invest. As set out in the offering circular, the sale of securities is subject to restrictions in some jurisdictions. In particular, any direct or indirect distribution of this document into the United States, Canada or Japan, or to U.S. persons or U.S. residents, is prohibited.
10
Appendix
The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, FTSE, STOXX Limited and/or Dow Jones & Company, Inc (“Index Providers”) and they bear no liability with respect to any such funds or securities or any index on which such funds or securities are based. The Offering Circular and the relevant Supplement contain a more detailed description of the limited relationship the Index Providers has with Deutsche Bank AG or any of its affiliates, db x-trackers and any related ETFs. All database rights, copyright and any other intellectual property rights in the Index and constituent list vests in the Index Providers and/or its licensors. Deutsche Bank AG or any of its affiliates has obtained full license from the Index Providers to use such database rights, copyright and other intellectual property rights in the creation of this product. The Index Providers and Deutsche Bank AG or any of its affiliates make no warranty or representation whatsoever either as to the results obtained from use of the indices and/or the figures at which the said indices stand at any particular day or otherwise. These index sponsors shall not be liable to any person for any error in their indices and shall not be under any obligation to advise any person of any error therein.
Deutsche Bank ETFs Trade the equity markets
Deutsche Bank ETF Sales,
in one product
Trading and Research Contacts
Low-cost index investment No front end loads1 in exchange
Deutsche Bank – ETF Sales
trading, 100% transparent
Equities:
High liquidity, low bid/offer
+27 11 775 7236
spreads
Deutsche Bank – ETF Trading
Transparent fund assets
Equities:
+27 11 775 7994
Opportunity for flexible use Deutsche Bank –
ETF Securities Lending Equities: Further information
+27 11 775 7076
Deutsche Bank – ETF Structuring
Internet: www.dbx-trackers.co.za
Equities:
+27 11 775 7076
E-mail:
[email protected] Hotline: 0861 111288
Deutsche Bank – ETF Research
Weekly and monthly research Address: Deutsche Bank db x-trackers ETF Team 3 Exchange Square 87 Maude Street Sandton
Printed on environmentally friendly paper.
1 For stock exchange trading plus normal transaction costs and further remuneration.
© January 2008 Deutsche Bank AG 003 81135 40
reports:
+27 11 775 7236