Deutsche cuts newly listed ETF fee to zero

Jul 19, 2009

Among the four latest exchange-traded funds cross-listed in Singapore, the bank is scrapping all sales and management charges on one, thanks to a tax-related advantage.

Deutsche Bank hopes to facilitate asset gathering for its newly cross-listed exchange-traded funds in Singapore by scrapping fees on one of them.

Last week, Singapore Exchange listed four more ETFs from the db x-trackers series, bringing the firm's total of cross-listed products in the Lion City to nine. (It has also cross-listed four ETFs in Hong Kong.) The latest funds track the MSCI All Countries Asia ex-Japan TRN Index, the MSCI Total Return Net Europe Index, the MSCI Total Return Net Korea Index, and the Dow Jones Euro Stoxx 50 Index.

Beginning this week, Deutsche is eliminating the 15 basis point all-in annual fee against the Euro Stoxx 50 index to Singaporean investors. (The all-in fees on the other three ETFs range from 30bps to 65bps.)

"We can do this thanks to our economies of scale," says Marco Montanari, head of ETFs for Asia at Deutsche Bank. The fund has raised €21 billion from investors in Europe. "We want to share that success with our investors, and also help boost our assets under management," he says.

The giveaway is possible not just because of the ETF's size but because of Deutsche Bank's corporate presence around the world, and the tax relationships it is able to negotiate with various governments. Funds investing in many continental European markets are subject to a roughly 20% withholding tax on dividends.

But Deutsche can "optimise" its taxation: because db x-trackers are swaps-based products, they require a counterparty -- Deutsche Bank -- that is able to claim back part of its withholding taxes in various jurisdictions.

This allows its ETFs, including the one tracking the Euro Stoxx index, to outperform their benchmarks, net of tax. Deutsche still makes money while marketing it to the relatively small Singaporean market for free, provided asset levels remain big enough to make the tax arbitrage worthwhile.

Montanari says this is one aspect of the competitive nature of the ETF series, which in Asia includes the region's first inverse (shorting) ETF, and now its first European equity ETFs.

Deutsche Bank intends to launch an additional 30 ETFs over the coming 12 months, not just in Hong Kong and Singapore, but in other Asian markets, although Montanari declined to name his target bourses.