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Three new exchange-traded funds issued by db x-trackers II, a subsidiary of Deutsche Bank, have been tradable in the XTF segment on Xetra since Wednesday. These index funds are the first credit derivative ETFs in Europe. Banks, in particular, use credit derivatives to pass on the risk of default by their borrowers to third party collateral providers, for which the latter receive a premium. In return, the collateral providers undertake to pay compensation to the bank in the event of payment default by the borrower.
The db x-trackers II iTraxx Europe 5-year TR Index ETF (ISIN: LU0290358653) allows investors to participate in the performance of an index which tracks a balanced portfolio of the 125 most liquid European investment grade reference entities for credit default swaps (CDS).
The db x-trackers II iTraxx Crossover 5-year TR Index ETF (ISIN: LU0290359032) enables investors to participate in the performance of 45 equally weighted European sub-investment grade reference entities.
Investors in the db x-trackers II iTraxx HiVol 5-year TR Index ETF (ISIN: LU0290358737) use the fund to invest in a balanced portfolio comprising the 30 reference entities in the iTraxx Europe Index with the largest spread.
The three indices are calculated by leading provider International Index Company Ltd. (IIC). The global market for credit derivatives has experienced strong growth over the past ten years. The credit default swap category has seen the largest increase, with a current market share of around a third.
