DWS revamps global aggregate bond ETF

DWS has made several adjustments to the $640 million Xtrackers II Global Aggregate Bond Swap UCITS ETF (XBAG).

Simon Klein, Global Head of Passive Sales at DWS.

The changes include the adoption of a new index incorporating ESG criteria, a switch in replication method from synthetic to physical, and a lowering of the fund’s expense ratio.

The fund, which is listed on London Stock Exchange, Xetra, SIX Swiss Exchange, and Borsa Italiana, has also been renamed the Xtrackers II ESG Global Aggregate Bond UCITS ETF.

The outgoing Bloomberg Global Aggregate Bond Index has been replaced by the Bloomberg MSCI Global Aggregate Sustainable and SRI Currency Neutral Index.

The new index continues to offer broad coverage of fixed-rate, investment-grade debt from Treasury, government-related, corporate, and securitized issuers globally. Eligible issues must have at least $500m par outstanding.

Unlike the old index, however, the new index thoroughly applies ESG criteria. The methodology first screens out companies embroiled in severe ESG-related controversies as well as firms deriving significant revenue from alcohol, tobacco, military or civilian weapons, gambling, coal, oil, or gas.

The remaining issuers are then assigned ESG ratings based on the most relevant ESG factors by industry. MSCI‘s ESG rating schedule runs on a seven-point scale from ‘CCC’ to ‘AAA’ with firms required to possess a rating of at least ‘BBB’ (average) to remain eligible for the index.

The resulting index contains approximately 13,000 bonds, less than half as many as the previous broad market benchmark. Constituents are weighted by market value while maintaining similar currency, sector, and maturity profiles compared to the parent universe. Rebalancing occurs monthly.

The ETF will track its new index using a physical, sample-based approach which, according to DWS, may appeal to investors who are concerned about counterparty risks inherent in the synthetic structure.

The ETF’s expense ratio has been reduced from 0.15% to 0.10% for its unhedged, US dollar share class and from 0.20% to 0.15% for its USD-hedged, EUR-hedged, GBP-hedged, and CHF-hedged share classes.

Simon Klein, Global Head of Passive Sales at DWS, said: “In our view, the Xtrackers II ESG Global Aggregate Bond UCITS ETF offers a very attractive combination for investors who want to track the entire investment-grade bond market with just one ETF and at the same time stringently comply with sustainability criteria. This is a very good example of how we continue to develop our ETFs to meet investor needs.”


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