Deutsche Bank launches "inverse" ETF in Asia

Deutsche Bank has launched four exchange traded funds (ETFs), branded as db x-trackers, on the Singapore Exchange. The offerings are the bank's first ETFs in Singapore.

This first batch includes the S&P 500 Short ETF, which is Asia's first "inverse" ETF. This tracks the S&P 500 Index, but in the opposite direction. Investors who expect the S&P 500 Index to fall can buy this ETF, as it is based on the short index which will rise when the main index falls. Annual management fee on this ETF is 0.50%.

The other ETFs are the MSCI Taiwan Total Return Net (TRN) Index ETF, the FTSE/Xinhua China 25 ETF, and the S&P CNX Nifty ETF, with annual management fees of 0.65%, 0.60%, and 0.85%, respectively.

The S&P 500 Short Index is linked inversely to the performance of the blue-chip index S&P 500 Total Return (TR) Index, which includes 500 large-cap American companies which trade on the New York Stock Exchange and the Nasdaq. The S&P 500 TR Index was created in 1957 and is maintained by the S&P Index Committee, whose members include Standard & Poor's economists and index analysts. It follows a set of published guidelines and policies that provide the transparent methodologies used to maintain the index. The S&P 500 TR Index is calculated on a total return basis, assuming that all dividends and distributions are reinvested. The index's top five holdings are Exxon Mobile, Johnson & Johnson, Procter & Gamble, AT&T, and Chevron Texaco.

"A short ETF, especially in today's volatile environment, can help investors better manage their investment risk and at the same time making it possible to generate positive returns, without having to use derivatives," says Thorsten Michalik, Frankfurt-based global head of db x-trackers at Deutsche Bank.

The launch of the S&P 500 Short ETF, in particular, is a minor coup of sorts for the Singapore Exchange, which has been working to widen its product choices. With the launch of Deutsche Bank's four ETFs, the exchange will have a total of 29 ETFs by the end of February 2009, covering mainly Asian equity markets such as Singapore, India, Greater China, Asean, Korea and Japan as well as commodities, including gold.

The bank's new MSCI Taiwan TRN Index is a free-float adjusted market capitalisation index. The index represents Taiwanese companies that are available to investors worldwide. The index has a base date of December 31, 1987. The index's top five holdings are Taiwan Semiconductor Manufacturing, Hon Hai Precision Industry, Chunghwa Telecom, Media Tek, and China Steel.

The FTSE/Xinhua China 25 Index is designed to represent the performance of blue-chip companies incorporated in mainland China that are available to international investors. The Index includes the 25 largest Chinese companies (ranked by total market capitalisation) listed on the Hong Kong Stock Exchange that are sufficiently liquid to be traded. Each constituent's weight is capped at 10% of the total index value. The base date of the Index is March 16, 2001. The index provider is FTSE Xinhua Index Limited (FXI), which is a joint venture company between the FTSE Group and Xinhua Financial Network, a subsidiary of Xinhua Finance Limited. The index's top five holdings are China Mobile, China Life Insurance, Industrial & Commercial Bank of China, Bank of China, and PetroChina.

The S&P CNX Nifty Index is a well-diversified 50 stock index in India accounting for 22 sectors of the economy. The index is managed by India Index Services and Products, which is a joint venture between National Stock Exchange of India and Credit Rating Information Services of India. The index's top five holdings are Reliance Industries, Oil & Natural Gas Corporation, NTPC Limited, Bharti Airtel, and State Bank of India.

Deutsche Bank expects to launch more ETFs covering major country, regional, as well as short and leveraged products in Singapore and other parts of Asia shortly.

The bank began offering ETF products to European investors in January 2007. Over the past two years, the company has expanded its offerings in Europe from eight to more than 100 products and with more than €18 billion under management, db x-trackers is one of the fastest growing ETF providers in Europe.

The bank hopes to duplicate its experience in Europe in Asia. Michalik expects assets under management in the Asian ETF market to total more than $85 billion by the end of 2010.