Germany: Deutsche Bank

It seems only fitting that a visit to Germany would include a discussion with one of the largest banks in the world, Germany’s own Deutsche Bank.  While visiting Munich, I had the opportunity to meet with Martin Weithofer.  Martin works in the Deutsche Asset & Wealth Management arm of the bank and holds the title of Managing Director, Passive Asset Management, Head of Strategic Beta.

This meeting was coordinated through Jeff Brainard and Steve Dunn on the U.S. side of the Deutsche Bank universe.  Thanks to Jeff and Steve for their help connecting the dots on my behalf.

Deutsche Bank (DB) is a huge bank, but they’re not content to rest on their laurels.  As Martin stated, DB has set its sights on creating a global asset management company that is based out of Europe.

Given Martin’s role within DB as the Head of Strategic Beta, the discussion naturally migrated to this important topic… including how different groups define “smart beta” products.  DB uses “strategic” to describe their products because they believe investors and managers have strategic reasons for using their ETFs. 

DB has been in the ETF space for some time and are looking to add a lot of new products.  DB believes that when it comes to Europe, the next big focus in the asset management space will be on strategic beta related to fixed income.  We walked through their methodology for screening and measuring the relative attractiveness of a country and their debt.

Ryan Hessenthaler with Martin Weithofer

Martin shared a lot of technical details with me, the bulk of which are included below for your reference.  I wanted to take the documents we used during the discussion because of the wealth of information they contained.  For compliance reasons, the paper copy remained with Martin in Munich and a U.S.-compliant version is being processed for our use soon.

Of particular note are the “four C’s” that DB uses when evaluating fixed income opportunities.  These sorts of details are critically important to understand for all ETF investors.  I found the discussion very interesting as Lunt Capital loves to get in to the nuts and bolts of ETFs.  We seek to truly understand the methodology and the specific risks and exposures any given ETF may provide.

Beyond the technical details related to their ETF construction, we talked about different groupings of ETFs such as Beta Plus and Equity Factors… all of which were music to my ears.  As Martin rolled through the list of strategies, I sheepishly noted that I wasn’t aware of a particular DB ETF.  He gave me a pass and told me there was a good reason I didn’t recognize the strategies… because the ETFs are still in development and haven’t launched just yet.  By the end of the year, there will be a host of new DB ETFs available which provide some very interesting exposures in equity, fixed income, alternatives, and currency-hedged forms.

Thanks again to Martin for his time and insights.  DB is pushing hard in the space and assets are following.  I have no doubt that innovative, cost-effective products will continue to attract capital.

 

Special thanks to Brennan Staheli, Joseph Hirschi, and the Lunt Capital team for their contributions to this report.