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US ETF Model Portfolios
North America Synthetic Equity & Index Strategy
US ETF ModelPortfolios
Date9 May 2017
Deutsche BankMarkets Research
House View Portfolio - Adjusting thecourseHouse View Update as
of May 5th 2017Six months after the US-elections, and with the
French presidential electionbehind us, we continue to favor
equities over fixed income, and remain outof commodities. However
we have made some significant adjustment withinspecific asset class
allocations to adjust for equity market differences,
anddevelopments on the credit and rates space. More specifically,
we take a morebalanced approach to risk in developed equity
markets, and a more targetedapproach in EM. While shortening
duration, and adding credit risk in debtmarkets.
Our HVP is up 30.4% since its launch on Oct 2, 2012, and 8.2%
higher sincethe last rebalancing on Nov 18, 2017. In the meantime,
our multi-asset-classbenchmark is 12.4% up since the launch of our
HVP, and 6.7% up since the lastrebalance, respectively.
Portfolio Updates and New MembershipWe maintained our strategic
asset allocation with 70% allotted to equities, 20%to fixed income,
and 10% to alternatives via FX. Within equities, we reduced
ourallocation to the US (50% to 35%), and increased our Intl
equities allocation from20% to 35% via a 25% exposure to Europe and
10% exposure to EM Asia. In theUS, we exited US Broad (-25%),
Utilities (-5%), Banks (-10%), and Biotech/Pharma(-10%); and added
Mega Cap (+20%), Mega Cap with Tech tilt (+10%), and USFinancials
(+5%). In fixed income, we swapped our 15% IG Credit exposure
forshort HY Credit, and kept the 5% to Inflation. In alternatives
we maintained the10% USD allocation.
Figure 1: New House View Portfolio*
Direction Type
DIA 0.17% 20% Long Core Equity Mega Cap
QQQ 0.20% 10% Long Core Equity Mega Cap Tech Tilt
XLF 0.14% 5% Long Satellite Equity US Financials
VGK 0.10% 25% Long Core Equity Europe
EEMA 0.49% 10% Long Satellite Equity EM Asia
SJNK 0.40% 15% Long Core Credit Short High Yield
TIP 0.20% 5% Long Satellite Inflation US TIPs
UUP 0.80% 10% Long Core FX Long USD
ExposurePosition
WeightAsset
Class
Source: Deutsche Bank. *Target Weights. See Figure 2 for old
basket and change details
Sebastian Mercado, CFA
Strategist
+1-212-250-8690
Deutsche Bank Securities Inc.
Deutsche Bank does and seeks to do business with companies
covered in its research reports. Thus, investors should beaware
that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should considerthis report as
only a single factor in making their investment decision.
DISCLOSURES AND ANALYST CERTIFICATIONSARE LOCATED IN APPENDIX 1.MCI
(P) 083/04/2017.
Distributed on: 09/05/2017 05:57:07 GMT
0bed7b6cf11c
mailto:[email protected]
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9 May 2017
US ETF Model Portfolios
Table Of Contents
The House View Portfolio
................................................. 3House View:
Don't dismiss inflation
..............................................................
3Portfolio Commentary
.....................................................................................
3Performance Analysis
.....................................................................................
6Summary of closed & changed portfolio positions
........................................ 7Product Commentary
.....................................................................................
8Portfolio constituents correlations
................................................................
15
ETF Standard Comparison
............................................. 16
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The House View PortfolioHouse View: Don't dismiss
inflation 1
Politics remain a key focus for markets, but the latest
developments in Europe arepositive. In France, the first round of
the presidential election ruled out the leastmarket-friendly
outcome, and although eurosceptic Marine Le Pen is in the run-offas
expected, polls suggest reformist Macron should win. The snap
election calledin Britain for June is a material positive
game-changer for Brexit negotiations.
Beyond politics, focus has been on fading conviction in
so-called Trump trades –higher inflation expectations and interest
rates and buoyant risk assets – followingspeed bumps on the US
domestic agenda and increased geopolitical tension.
But with global macro momentum solid – though off recent highs –
and globalgrowth expected to pick-up next year and approach 4% in
2018, do not dismissinflation risks, especially in the US. Indeed
the macro backdrop comforts the viewthat we are past peak central
bank easing. The Fed will likely raise rates twicemore this year
and announce the start of the unwind of its balance sheet. TheECB
is on track to announce a taper of its quantitative easing
programme laterthis year, but the tone at the April meeting should
still be quite cautious.
We have revisited our currency views. The snap UK election
caused us to increaseour sterling forecast but did not alter our
medium-term bearish stance. We stillexpect the euro to break parity
but the sequencing of the ECB's tightening policiesis key: a shift
toward rate rises rather than a withdrawal of quantitative
easingwould be bullish for the euro. In rates, we expect bond
yields to climb beyondnear-term election risk. In credit we expect
the low default environment to persist.We see valid counters to the
consensus view that European equities shouldoutperform US
equities.
Portfolio Commentary
After about 5 months of US-centered markets, other markets
around the worldbegan to catch up as the Trump-trade began to lose
some steam, and otherregions started to look more attractive
following the post-election rally in the USmarket.
At the end of Q1, DB's Global Asset Allocation
Strategist 2 remained overweightequities, underweight
bonds and cash, moved commodities from neutral tounderweight, and
remained neutral to the dollar. In addition, he pointed out thatthe
valuation premium for US equities relative to the rest of the world
was atthe top of its historical band, while demand-supply still
remained supportive.Therefore he moved US equities from overweight
to neutral. While, at thesame time, tactically moving European
equities from under- to overweight; andremaining underweight Japan,
and overweight EM, particularly EM Asia.
1 Taken from "The House View: Don't dismiss inflation" published
on April 25, 2017 by Deutsche BankResearch
2 Chadha, Binky. "Have Confidence And Markets Run Ahead?",
published on March 28, 2017 by DeutscheBank's Global Asset
Allocation team.
Deutsche Bank Securities Inc. Page 3
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US ETF Model Portfolios
Within the US market they still remain overweight exposure to
cyclical growth(Industrials and Consumer Discretionary); long
Technology pointing out thatbetter growth and rising payouts are
not priced in yet; short rates exposure (longFinancials/short
Consumer Staples and Utilities); neutral Energy where stocks
arealready pricing in much lower oil prices; and neutral Health
Care despite cheapvaluation given the political overhang.
On the other hand, macro data surprises turning negative bode
for neutral equitypositioning. While there are also valid counters
to the European equity strengthconsensus view.
On the Fixed Income front, we expect higher rates both in the US
and in Europe aswe get deeper in a rate normalization cycle, and
slow down quantitative easing,respectively. While, on the credit
front we expect defaults to remain low and,therefore provide a
supportive environment for High Yield Credit.
In view of these recent developments, we have decided to
maintain the highlevel asset class allocations with Equity at a
70%, Fixed Income at a 20%, andAlternatives at a 10%. However,
within each asset class we have made significantchanges to
accommodate our portfolio to the current environment.
Figure 2: House View Portfolio Change Details
Old New Direction Type
DIA 0.17% 0% 20% Long Core Equity Mega Cap
VTI 0.04% 25% 0% Long Core Equity US Broad
QQQ 0.20% 0% 10% Long Core Equity Mega Cap Tech Tilt
IBB 0.47% 10% 0% Long Satellite Equity US Biotech/Pharma
XLF 0.14% 0% 5% Long Satellite Equity US Financials
KBWB 0.35% 10% 0% Long Satellite Equity US Banks
XLU 0.14% 5% 0% Long Satellite Equity US Utilities
VGK 0.10% 0% 25% Long Core Equity Europe
EEMA 0.49% 0% 10% Long Satellite Equity EM Asia
VXUS 0.11% 20% 0% Long Core Equity Global ex US
SJNK 0.40% 0% 15% Long Core Credit Short High Yield
LQD 0.15% 15% 0% Long Core Credit Inv. Grade
TIP 0.20% 5% 5% Long Satellite Inflation US TIPs
UUP 0.80% 10% 10% Long Core FX Long USD
Weight Position Asset
ClassExposure
Source: Deutsche Bank, Bloomberg Finance LP. Highlighted fields
are portfolio updates Red: wgt decrease. Green: wgt increase. Gray:
ETF update
Within Equities we have decided to reduce the US equity
allocation from 50%to 35% of the portfolio. In addition, within US
equities we decided to tilt ourportfolio towards Mega Caps and the
following sectors: Consumer Discretionary,Industrials, Technology,
and Financials. In fact, our combination of 3 ETFsprovided us with
an additional 18% in our preferred sectors relative to the S&P
500index (based on ETF weights), and a clear tilt towards
Financials, and Technology.
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US ETF Model Portfolios
Figure 3: US Equity Allocation aggregate sector
exposuresPortfolio Allocation
Sector / Ticker DIA QQQ XLF Agg. Alloc SPYAgg. Alloc
vs. SPY
Consumer Discretionary 15.1% 21.9% 14.9% 12.4% 2.5%
Consumer Staples 6.7% 5.8% 5.5% 9.2% -3.7%
Energy 6.2% 3.5% 6.3% -2.7%
Financials 16.8% 100.0% 23.9% 14.2% 9.7%
Health Care 12.8% 11.0% 10.5% 13.9% -3.5%
Industrials 20.6% 2.2% 12.4% 10.2% 2.3%
Information Technology 17.6% 58.0% 26.6% 22.7% 4.0%
Materials 2.6% 1.5% 2.8% -1.3%
Real Estate 0.0% 2.9% -2.9%
Telecommunication Services 1.5% 1.0% 1.2% 2.2% -1.1%
Utilities 0.0% 3.1% -3.1%
Agg. Alloc SPYAgg. Alloc
vs. SPY
Overweight 77.9% 59.5% 18.4%
Neutral 16.6% 28.1% -11.5%
Underweight 5.5% 12.3% -6.8%
Source: Deutsche Bank, Bloomberg Finance LP.
Still in Equities, but outside the US, we decided to increase
our exposure from20% to 35%, broken down by a 25% allocation to
European equities, and a 10%allocation to EM Asian equities. In
both cases we adopted a diversified approachboth in terms of market
capitalization and geographic diversification.
Within Fixed Income we decided to swap our exposure to
Investment GradeCredit for an allocation of the same weight (15%)
to Short High Yield Credit inan attempt to reduce rate risk and
take advantage of furthering potential spreadcompression. Moreover,
we maintained our 5% allocation to Inflation exposurevia TIPs to
account for the potential risk for higher inflation on the back of
above-trend growth and other pressures, such as from the job
market.
Finally, in Alternatives we maintained our 10% allocation to the
USD despiterecent pressure, as we still see a case for a strong
dollar.
Figure 4: Target Asset Class and Equity allocations
0%
10%
20%
30%
40%
50%
60%
70%
80%
Equity Fixed Income Alternatives
Previous Current
0%
10%
20%
30%
40%
50%
60%
North America Europe Japan Asia ex JP
Previous Current
0%
10%
20%
30%
40%
50%
60%
US DM Intl EM
Previous Current
Source: Deutsche Bank
Deutsche Bank Securities Inc. Page 5
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9 May 2017
US ETF Model Portfolios
Performance Analysis
At a headline level, we compare the performance of our HVP
against theperformance of Global equities and of a
multi-asset-class benchmark. The Global 3
equities benchmark is represented by ACWI which tracks
the MSCI All CountryWorld index, while the multi-asset-class
benchmark represents a basket of Globalequity (ACWI), US fixed
income (BND), and commodity (DBC) exposures withthe following
weights: 50%, 30%, and 20%, respectively. Our HVP is up 30.4%since
its Oct 2012 launch, while ACWI and the multi-assetclass benchmark
havegained 53.1% and 12.4% during the same period, respectively.
The multi assetclass benchmark has been the least volatile with
annualized volatility of 8.0%,compared to 10.3% for our HVP and
13.1% for ACWI, since inception.
Figure 5: Portfolio performance since launch
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16
Apr-17
No
rmaliz
ed
Le
ve
l
(10
0)
House View Port. ACWI Bnchmk
Source: Deutsche Bank, FactSet, Performance corresponds to Total
Returns and it does not include transaction costs
Since the last rebalancing date on Nov 18, 2016, the HVP
advanced 8.2% vs.a 6.7% gain for the benchmark. Most asset classes
saw positive performanceduring this period, with the exception of
Commodities and a long position on theUSD. More specifically, our
portfolio saw strong performance and contributionsfrom the
positions in Global ex US equities, and US Broad equities, while
USUtilities were also a strong performer.
Figure 6: Performance by position
-5% 0% 5% 10% 15% 20%
Fixed Income (BND)
Comdty (DBC)
Equity (ACWI)
FX Long USD (UUP)
US Tips (TIP)
IG Credit (LQD)
Eq. Global Ex US (VXUS)
Eq. US Bio/Pharma (IBB)
Eq. US Banks (KBWB)
Eq. US Utilities (XLU)
Eq. US Broad (VTI)
Performance
Bnchm
rk
Ho
use V
iew
Po
rt.
Source: Deutsche Bank, FactSet. Total Return performance from
Nov 18, 2016 to May 5, 2017
Figure 7: Performance contribution by position
-2.0% 0.0% 2.0% 4.0% 6.0% 8.0%
Fixed Income (BND)
Comdty (DBC)
Equity (ACWI)
FX Long USD (UUP)
US Tips (TIP)
IG Credit (LQD)
Eq. Global Ex US (VXUS)
Eq. US Bio/Pharma (IBB)
Eq. US Banks (KBWB)
Eq. US Utilities (XLU)
Eq. US Broad (VTI)
Performance
Contribution
Ho
use V
iew
Po
rt.
Bnchm
rk
Source: Deutsche Bank, FactSet. Total Return performance from
Nov 18, 2016 to May 5, 2017
3 Since Nov 1, 2013 we have changed the equity benchmark from US
Equities (S&P 500 – SPY) to GlobalEquities (MSCI All Country
World Index – ACWI). The House View Portfolio is a global
multi-asset-classportfolio; therefore a Global equity benchmark is
more appropriate than a US-centric one.
Page 6 Deutsche Bank Securities Inc.
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US ETF Model Portfolios
Summary of closed & changed portfolio positions
Figure 8: Details for closed & changed positions (most
recent changes on top)
Ticker ExposureOpen
Weight
Close
Weight
Weight
ChangeOPEN CLOSED Exit/Chg Performance
VTI US Broad 25.0% 0.0% -25.0% 18-Nov-16 5-May-17 Full
10.54%
XLU US Utilities 5.0% 0.0% -5.0% 18-Nov-16 5-May-17 Full
13.69%
KBWB US Banks 10.0% 0.0% -10.0% 18-Nov-16 5-May-17 Full
8.80%
IBB US Biotech/Pharma 10.0% 0.0% -10.0% 18-Nov-16 5-May-17 Full
4.06%
VXUS Global ex US 20.0% 0.0% -20.0% 18-Nov-16 5-May-17 Full
16.82%
LQD Credit - Investment Grade 15.0% 0.0% -15.0% 30-Jun-16
5-May-17 Full -0.65%
USMV US LC Min Vol 15.0% 0.0% -15.0% 9-Feb-16 18-Nov-16 Full
12.22%
EFAV Equity - DM Intl Min Vol 20.0% 0.0% -20.0% 30-Jun-16
18-Nov-16 Full -7.05%
XLU US Utilities 10.0% 5.0% -5.0% 9-Feb-16 18-Nov-16 Partial
1.82%
IEF Rates - Intermediate UST 20.0% 0.0% -20.0% 9-Feb-16
18-Nov-16 Full -3.22%
IAU Cmdty - Gold 15.0% 0.0% -15.0% 30-Jun-16 18-Nov-16 Full
-8.86%
UUP FX - Long USD 5.0% 10.0% 5.0% 9-Feb-16 18-Nov-16 Increase
5.05%
KBWB US Banks 5.0% 0.0% -5.0% 9-Feb-16 30-Jun-16 Full 9.77%
EFAV Equity - DM Intl Min Vol 25.0% 20.0% -5.0% 9-Feb-16
30-Jun-16 Partial 8.77%
IAU Cmdty - Gold 10.0% 15.0% 5.0% 9-Feb-16 30-Jun-16 Increase
11.34%
LQD Credit - Investment Grade 10.0% 15.0% 5.0% 7-Oct-15
30-Jun-16 Increase 7.70%
QQQ Equity - US Large Caps 15.0% 0.0% -15.0% 7-Oct-15 9-Feb-16
Full -8.54%
XLU US Utilities 5.0% 10.0% 5.0% 7-Oct-15 9-Feb-16 Increase
8.26%
DXJ Equity - Japan 15.0% 0.0% -15.0% 29-Jul-14 9-Feb-16 Full
-3.04%
DBEU Europe 25.0% 0.0% -25.0% 7-Oct-15 9-Feb-16 Full -13.17%
EPI Equity - India 5.0% 0.0% -5.0% 5-Jan-15 9-Feb-16 Full
-19.56%
FXI Equity - China 5.0% 0.0% -5.0% 12-Jun-15 9-Feb-16 Full
-39.60%
IEF Rates - Intermediate UST 10.0% 20.0% 10.0% 7-Oct-15 9-Feb-16
Increase 3.35%
UUP FX - Long USD 10.0% 5.0% -5.0% 6-Mar-13 9-Feb-16 Partial
10.85%
QQQ Equity - US Large Caps 20.0% 15.0% -5.0% 12-Jun-15 7-Oct-15
Partial -2.41%
KBWB US Banks 7.5% 0.0% -7.5% 12-Jun-15 7-Oct-15 Full -9.24%
IBB US Biotech/Pharma 5.0% 0.0% -5.0% 12-Jun-15 7-Oct-15 Full
-15.41%
XLU US Utilities 2.5% 5.0% 2.5% 12-Jun-15 7-Oct-15 Increase
4.06%
DBEU Europe 20.0% 25.0% 5.0% 12-Jun-15 7-Oct-15 Increase
-5.45%
HYG Credit - High Yield 10.0% 0.0% -10.0% 5-Jan-15 7-Oct-15 Full
-0.64%
QQQ Equity - US Large Caps 25.0% 20.0% -5.0% 5-Jan-15 12-Jun-15
Partial 7.46%
BBH US Biotech 5.0% 0.0% -5.0% 29-Jul-14 12-Jun-15 Full
35.54%
XRT US Retail 5.0% 0.0% -5.0% 5-Jan-15 12-Jun-15 Full 5.97%
XLU US Utilities 5.0% 2.5% -2.5% 5-Jan-15 12-Jun-15 Partial
-8.50%
HEDJ Eurozone 10.0% 0.0% -10.0% 5-Jan-15 12-Jun-15 Full
17.37%
ASHR China 5.0% 0.0% -5.0% 5-Jan-15 12-Jun-15 Full 47.28%
KBWB US Banks 5.0% 7.5% 2.5% 29-Jul-14 12-Jun-15 Increase
13.10%
QQQ Equity - US Large Caps 15.0% 25.0% 10.0% 29-Jul-14 5-Jan-15
Increase 5.64%
EUFN Equity - European Fin. 5.0% 0.0% -5.0% 31-Oct-13 5-Jan-15
Full -9.24%
EWG Equity - Germany 5.0% 0.0% -5.0% 29-Jul-14 5-Jan-15 Full
-12.15%
EWP Equity - Spain 5.0% 0.0% -5.0% 29-Jul-14 5-Jan-15 Full
-17.51%
EZU Equity - Eurozone 5.0% 0.0% -5.0% 29-Jul-14 5-Jan-15 Full
-13.74%
FXI Equity - China 7.5% 0.0% -7.5% 29-Jul-14 5-Jan-15 Full
2.70%
GMF Equity - EM Asia Pacific 5.0% 0.0% -5.0% 29-Jul-14 5-Jan-15
Full -4.19%
EPI Equity - India 7.5% 5.0% -2.5% 29-Jul-14 5-Jan-15 Partial
-0.60%
Source: Deutsche Bank, FactSet. Performance corresponds to Total
Returns
Deutsche Bank Securities Inc. Page 7
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9 May 2017
US ETF Model Portfolios
Figure 9: Details for closed & changed positions (cont)
Ticker ExposureOpen
Weight
Close
Weight
Weight
ChangeOPEN CLOSED Exit/Chg Performance
PCY Credit - EM Debt 5.0% 0.0% -5.0% 29-Jul-14 5-Jan-15 Full
-2.54%
VTIP Inflation - Short Term TIPs 5.0% 0.0% -5.0% 29-Jul-14
5-Jan-15 Full -2.69%
QDF Equity - US Divs. 15.0% 0.0% -15.0% 14-Feb-14 29-Jul-14 Full
8.66%
QQQ Equity - US Large Caps 20.0% 15.0% -5.0% 14-Feb-14 29-Jul-14
Partial 8.55%
EWG Equity - Germany 10.0% 5.0% -5.0% 14-Feb-14 29-Jul-14
Partial -3.15%
EZU Equity - Eurozone 15.0% 5.0% -10.0% 14-Feb-14 29-Jul-14 Full
0.18%
JNK Credit - HY Debt 5.0% 0.0% -5.0% 14-Feb-14 29-Jul-14 Full
2.78%
BKLN Credit - Senior Loans 5.0% 0.0% -5.0% 14-Feb-14 29-Jul-14
Full 1.25%
DXJ Equity - Japan 10.0% 15.0% 5.0% 14-Feb-14 29-Jul-14 Increase
8.64%
FXI Equity - China 5.0% 7.5% 2.5% 14-Feb-14 29-Jul-14 Increase
16.13%
JNK Credit - HY Debt 10.0% 5.0% -5.0% 3-May-13 14-Feb-14 Partial
2.64%
MCHI Equity - China 7.5% 0.0% -7.5% 28-Nov-12 14-Feb-14 Full
3.94%
IVV Equity - US Large Caps 20.0% 0.0% -20.0% 7-Feb-13 14-Feb-14
Full 24.40%
VGT Equity - US Technology 5.0% 0.0% -5.0% 3-May-13 14-Feb-14
Full 23.25%
BKLN Credit - Senior Loans 10.0% 5.0% -5.0% 7-Feb-13 14-Feb-14
Partial 4.03%
VIG Equity - US Divs. 20.0% 0.0% -20.0% 3-May-13 14-Feb-14 Full
10.68%
DXJ Equity - Japan 7.5% 10.0% 2.5% 3-May-13 14-Feb-14 Increase
-0.32%
XLF Equity - US Financials 5.0% 0.0% -5.0% 3-May-13 31-Oct-13
Full 9.97%
IVV Equity - US Large Caps 25.0% 15.0% -10.0% 7-Feb-13 13-Aug-13
Partial 13.49%
MCHI Equity - China 10.0% 7.5% -2.5% 28-Nov-12 3-May-13 Partial
3.00%
SDY Equity - US Divs. 25.0% 0.0% -25.0% 7-Feb-13 3-May-13 Full
9.71%
HYS Credit - High Yield 10.0% 0.0% -10.0% 7-Feb-13 3-May-13 Full
2.98%
IVV Equity - US Large Caps 35.0% 25.0% -10.0% 7-Feb-13 3-May-13
Partial 7.33%
IAU Cmdty - Gold 5.0% 0.0% -5.0% 1-Oct-12 6-Mar-13 Full
-10.93%
FXE FX - EURUSD 5.0% 0.0% -5.0% 1-Oct-12 6-Mar-13 Full 0.64%
DVY Equity - US Divs. 20.0% 0.0% -20.0% 1-Oct-12 7-Feb-13 Full
5.74%
USMV Equity - US Low Vol. 25.0% 0.0% -25.0% 1-Oct-12 7-Feb-13
Full 4.10%
PCY Credit - EM Debt 10.0% 0.0% -10.0% 1-Oct-12 7-Feb-13 Full
0.40%
JNK Credit - HY Debt 10.0% 0.0% -10.0% 1-Oct-12 7-Feb-13 Full
3.33%
IAU Cmdty - Gold 15.0% 5.0% -10.0% 1-Oct-12 7-Feb-13 Partial
-5.96%
FXE FX - EURUSD 10.0% 5.0% -5.0% 1-Oct-12 7-Feb-13 Partial
3.81%
DVY Equity - US Divs. 25.0% 20.0% -5.0% 1-Oct-12 28-Nov-12
Partial -0.87%
IAU Cmdty - Gold 20.0% 15.0% -5.0% 1-Oct-12 28-Nov-12 Partial
-3.24%
Source: Deutsche Bank, FactSet. Performance corresponds to Total
Returns
Product Commentary
US Equity ExposureWe looked for products that could provide a
good fit for our desired marketcapitalization and sector tilt. More
specifically, we looked for ETFs that couldprovide exposure to Mega
Caps along with a sector bias favoring ConsumerDiscretionary,
Industrials, Financials, and Technology, while reducing exposureto
Consumer Staples, and Utilities. At the same time, we considered
liquidityand cost levels that would allow large trades and low
on-going fees. Most broadsector market-cap weighted US equity ETFs
would not provide our intendedaggregate US exposure, therefore we
analyzed six ETFs that provide alternativemethodologies to the
traditional market cap benchmarks. We consider all of
thesecandidates as investable and portfolio-worthy products,
however some adjustbetter to the designs of our portfolio (See
Figure 10 for details).
For example, QQEW, and QQQE both track the NASDAQ-100 index
using an equalweighting approach. QQQE is cheaper, but QQEW is
larger and with slightly better
Page 8 Deutsche Bank Securities Inc.
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9 May 2017
US ETF Model Portfolios
liquidity. Both provide an alternative to the
overly-concentrated QQQ (NASDAQ100 index). However, we were not
able to obtain our intended aggregate exposureby themselves or when
blending them with other ETFs, and the costs were higherthan our
cost target (
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9 May 2017
US ETF Model Portfolios
geographic, market cap, and single company exposure; with good
liquidity at alow cost (See Figure 12 for more details).
HEDJ, EZU, and FEZ are all Eurozone focus, therefore we passed
on them. HEDJoffers a currency hedged alternative, EZU offers
traditional market cap access,while FEZ offers a lower cost Mega
Cap access to EU companies.
On the European front, IEV provides traditional market cap
access with the highestprice tag (60bps). DBEU provides currency
hedged access to Europe, howeverwe were not looking at implementing
currency views outside our Long USDposition. IEUR is a good
alternative for a cheap core access to Europe at 10bps,and
diversified exposure, however liquidity is still developing
relative to otherproducts.
Finally, VGK met all of our sought criteria, providing
diversified access to marketcap segments and countries, at a low
cost of 10bps, and with established liquiditynot only for
buy-and-hold positions, but also for tactical trading. In fact, the
on-exchange liquidity, bid/ask spreads, options activity, short
interest activity, andinstitutional ownership all suggest that VGK
is the ETF more likely to be utilizedfor non-investment short term
purposes for European equities.
EM Asian Equity ExposureThere are two good candidates for
regional exposure offering access to EM Asia.Both are very similar
in terms of size (>$300m), and liquidity. But they have onebig
difference: South Korea. EEMA includes South Korea, and GMF
doesn't. Inour case we wanted to have the diversification benefits
that came from addingSouth Korea to the EM Asian exposure,
therefore we chose EEMA (See Figure13 for details).
Short Duration High Yield Credit ExposureThere are three very
good alternatives to implement a short duration HY creditexposure.
SJNK, SHYG, and HYS all have valid attributes to be considered in
anyinvestors' portfolio. SJNK and SHYG both follow a passive
strategy and come at alower expense ratio of 40bps and 30bps,
respectively; while HYS follows an activestrategy and comes with a
higher price tag of 55bps. SJNK and HYS have moreliquid profiles,
relative to SHYG. And despite the similarities in portfolio
metrics,HYS has a higher yield, and spread; followed by SJNK and
SHYG; while durationrisk is somewhat similar among them. Given a
combination of liquidity, cost, andportfolio metrics we decided to
use SJNK in the HVP (See Figure 14 for additionaldetails)
In addition to these three ETFs, we also feature two High Yield
Credit ETFs withinterest rate-hedge. These products (HYHG, HYGH)
offer the traditional creditexposure of HY Corporate ETFs, while
hedging the rate risk by using interest rateswaps. These could also
be considered as viable options to get access to highyield credit
with shorter duration risk (in this case actually hedged).
Page 10 Deutsche Bank Securities Inc.
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US ETF Model Portfolios
Figure 10: Product comparison for US Equity Exposure
Ticker SPY DIA QQQ QQEW QQQE BFOR XRLV
Focus Large Cap Mega CapTech tilt ex
Financials
Tech Tilt +
Equal Wgt
Tech Tilt +
Equal Wgt
Fundamental +
Equal Wgt
Ex Rate
SensitiveIssuer SSGA SSGA PowerShares First Trust Direxionshares
ALPS PowerShares
Index Family S&P Dow Jones NASDAQ NASDAQ NASDAQ Barron's
S&P
TER 0.09% 0.17% 0.20% 0.60% 0.35% 0.65% 0.25%
AUM $MM 234,182 16,327 49,897 512 129 197 120
20D ADV $MM 18,730.8 580.4 2,716.4 3.7 1.0 0.4 0.5
Implied Liquidity $MM 10,316 2,870 1,057 601 607 7 995
Total Liquidity $MM 29,047 5,586 1,637 605 608 7 996
5D Bid/Ask Spread $ 0.01 0.01 0.01 0.03 0.08 0.09 0.03
5D Bid/Ask Spread bps 0.4 0.6 0.7 6.1 20.9 24.8 8.7
Short Int as % Shr. Out 18.2% 7.2% 13.9% 0.6% 0.4% 0.2% 0.3%
Option Not. Volume $MM 66,505.4 610.4 6,845.9 0.0 0.0 0.0 -
Option Not. Open Int. $MM 540,271.8 8,841.7 61,140.4 - 1.2 0.0
-
Ownership SPY DIA QQQ QQEW QQQE BFOR XRLV
# of Institutional Owners 1798 481 936 61 28 31 36
Institutional 75% 33% 41% 52% 17% 33% 67%
Retail 25% 67% 59% 48% 83% 67% 33%
Top 5 Inst. Investor Types SPY DIA QQQ QQEW QQQE BFOR XRLV
1 Inv. Adv. (29%) Inv. Adv. (15%) Inv. Adv. (15%) PB/WM (28%)
Inv. Adv. (11%) PB/WM (29%) Inv. Adv. (61%)
2 PB/WM (16%) PB/WM (12%) PB/WM (11%) Inv. Adv. (24%) PB/WM (3%)
Inv. Adv. (2%) PB/WM (4%)
3 Broker (12%) Broker (3%) MF (5%) Broker (1%) Broker (3%)
Broker (2%) MF (2%)
4 HF (6%) HF (1%) Broker (4%) HF (0%) Arbitrage (0%) HF (0%)
Broker (1%)
5 MF (6%) MF (1%) HF (3%) HF (0%)
Exposure by Market Cap SPY DIA QQQ QQEW QQQE BFOR XRLV
Large Cap 99.7% 99.9% 99.8% 99.0% 98.9% 39.5% 100.0%
Mid Cap 0.2% 0.1% 1.0% 1.0% 25.5%
Small Cap 34.7%
Exposure by Sectors SPY DIA QQQ QQEW QQQE BFOR XRLV
Consumer Discretionary 12.4% 15.1% 21.9% 26.9% 26.9% 21.4%
13.4%
Consumer Staples 9.2% 6.7% 5.8% 4.9% 4.9% 3.3% 8.2%
Energy 6.3% 6.2% 3.6% 1.0%
Financials 14.2% 16.8% 17.5% 16.8%
Health Care 13.9% 12.8% 11.0% 19.3% 19.3% 13.0% 14.1%
Industrials 10.2% 20.6% 2.2% 6.7% 6.7% 13.6% 25.1%
Information Technology 22.7% 17.6% 58.0% 40.1% 40.1% 20.8%
16.0%
Materials 2.8% 2.6% 5.5% 3.8%
Real Estate 2.9% 0.5% 0.8%
Telecommunication Services 2.2% 1.5% 1.0% 2.0% 2.0% 1.0%
Utilities 3.1% 0.5%
Concentration SPY DIA QQQ QQEW QQQE BFOR XRLV
Total # of Holdings 506 31 107 107 108 401 100
Top 1 3.8% 7.4% 11.9% 1.3% 1.3% 0.4% 1.5%
Top 5 11.6% 30.6% 37.5% 5.9% 5.9% 1.8% 7.0%
Top 10 19.0% 53.1% 51.8% 11.4% 11.4% 3.4% 13.2%
Top 10 Holdings SPY DIA QQQ QQEW QQQE BFOR XRLV
1 AAPL (3.8%) GS (7.4%) AAPL (11.9%) VRTX (1.3%) VRTX (1.3%)
TPIXX (0.4%) JNJ (1.5%)
2 MSFT (2.6%) MMM (6.5%) MSFT (8.2%) TSLA (1.2%) TSLA (1.2%)
MDXG (0.4%) MMM (1.4%)
3 AMZN (1.8%) BA (6.0%) AMZN (6.9%) LRCX (1.2%) LRCX (1.2%) AKRX
(0.4%) RSG (1.4%)
4 FB (1.7%) UNH (5.6%) FB (5.5%) ILMN (1.1%) ILMN (1.1%) HOFT
(0.3%) WM (1.4%)
5 XOM (1.7%) IBM (5.2%) GOOG (5.0%) WDC (1.1%) WDC (1.1%) LMAT
(0.3%) MCD (1.3%)
6 JNJ (1.6%) HD (5.1%) GOOGL (4.3%) PYPL (1.1%) PYPL (1.1%) GRUB
(0.3%) ALL (1.3%)
7 BRK.B (1.5%) AAPL (4.8%) CMCSA (2.8%) CERN (1.1%) CERN (1.1%)
ILG (0.3%) KO (1.3%)
8 JPM (1.5%) MCD (4.7%) INTC (2.7%) ISRG (1.1%) ISRG (1.1%) ROG
(0.3%) MMC (1.2%)
9 GOOGL (1.4%) JNJ (4.0%) CSCO (2.6%) JD (1.1%) JD (1.1%) FIVE
(0.3%) BRK.B (1.2%)
10 GOOG (1.3%) TRV (3.9%) AMGN (1.9%) AMZN (1.1%) AMZN (1.1%)
SCSS (0.3%) UPS (1.2%)
Source: Deutsche Bank, Bloomberg Finance LP, FactSet. Data as of
May 4th 2017 or latest available. Inv. Adv.: Investment Adviser;
PB/WM: Private Bank/Wealth Management; HF: Hedge Fund;PF: Pension
Fund; MF: Mutual Fund.
Deutsche Bank Securities Inc. Page 11
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US ETF Model Portfolios
Figure 11: Product comparison for US Equity Financials
Exposure
Ticker XLF VFH IYF FXO FNCL RYF PFI
Focus Large Cap Market Access Market Access Multi Factor Market
Access Equal Wgt Momentum
Issuer SSGA Vanguard BlackRock First Trust Fidelity Guggenheim
PowerShares
Index Family S&P MSCI Dow Jones AlphaDEX MSCI S&P
DWA
TER 0.14% 0.10% 0.43% 0.70% 0.08% 0.40% 0.60%
AUM $MM 22,830 5,740 1,734 1,005 827 285 87
20D ADV $MM 1,894.1 63.0 56.1 10.6 6.6 8.8 0.4
Implied Liquidity $MM 1,457 864 2,314 372 456 595 148
Total Liquidity $MM 3,351 927 2,370 383 463 604 149
5D Bid/Ask Spread $ 0.01 0.01 0.01 0.02 0.02 0.06 0.08
5D Bid/Ask Spread bps 4.2 2.0 1.2 5.5 6.5 14.9 27.1
Short Int as % Shr. Out 9.5% 0.2% 6.9% 3.8% 0.0% 0.7% 3.8%
Option Not. Volume $MM 444.8 0.9 0.5 0.0 0.0 - -
Option Not. Open Int. $MM 11,276.0 19.8 16.9 - 0.9 - -
Ownership XLF VFH IYF FXO FNCL RYF PFI
# of Institutional Owners 841 244 233 118 68 61 39
Institutional 66% 49% 53% 64% 32% 51% 81%
Retail 34% 51% 47% 36% 68% 49% 19%
Top 5 Inst. Investor Types XLF VFH IYF FXO FNCL RYF PFI
1 Inv. Adv. (29%) Inv. Adv. (37%) Inv. Adv. (31%) PB/WM (34%)
Inv. Adv. (26%) Inv. Adv. (40%) Inv. Adv. (65%)
2 PB/WM (16%) PB/WM (9%) PB/WM (12%) Inv. Adv. (28%) PB/WM (6%)
PB/WM (10%) PB/WM (14%)
3 HF (8%) MF (2%) Broker (7%) Broker (2%) Broker (1%) HF (0%)
Broker (1%)
4 Broker (6%) Broker (1%) MF (2%) MF (1%) Fam. Of. (0%) Broker
(0%) MF (0%)
5 PF (5%) Ins. Co. (1%) HF (1%) HF (0%) Ins. Co. (0%) HF
(0%)
Exposure by Market Cap XLF VFH IYF FXO FNCL RYF PFI
Large Cap 99.6% 87.6% 91.5% 76.6% 87.7% 98.2% 65.5%
Mid Cap 0.2% 7.7% 7.8% 23.2% 7.7% 1.7% 24.6%
Small Cap 4.5% 0.5% 0.0% 4.6% 9.8%
Exposure by Industries XLF VFH IYF FXO FNCL RYF PFI
Banks 44.9% 45.9% 32.3% 16.4% 46.3% 25.5% 53.7%
Capital Markets 19.8% 18.8% 14.0% 15.5% 18.8% 31.0% 10.8%
Consumer Finance 5.1% 5.1% 3.6% 6.1% 5.1% 7.2% 1.9%
Diversified Fin. Srvcs 11.1% 6.3% 7.0% 1.1% 6.3% 3.0%
Insurance 18.9% 20.8% 15.2% 25.4% 20.4% 33.1% 27.8%
Mortgage REITs 1.6% 4.9% 1.6% 1.8%
Thrifts & Mort. Fin. 1.4% 0.7% 1.4% 1.0%
Non-Financials 0.0% 0.0% 26.3% 29.7% 0.0% 0.0% 2.9%
Concentration XLF VFH IYF FXO FNCL RYF PFI
Total # of Holdings 66 397 286 177 397 66 57
Top 1 10.8% 8.9% 6.8% 1.0% 8.8% 1.7% 4.7%
Top 5 43.8% 33.6% 27.6% 5.1% 33.5% 8.3% 21.3%
Top 10 55.9% 43.7% 38.5% 10.1% 43.6% 16.4% 35.4%
Top 10 Holdings XLF VFH IYF FXO FNCL RYF PFI
1 BRK.B (10.8%) JPM (8.9%) BRK.B (6.8%) LPLA (1.0%) JPM (8.8%)
NAVI (1.7%) FITB (4.7%)
2 JPM (10.6%) WFC (7.5%) JPM (6.7%) AIZ (1.0%) WFC (7.4%) MCO
(1.7%) UNM (4.6%)
3 WFC (8.5%) BAC (6.7%) WFC (5.3%) FAF (1.0%) BAC (6.8%) STT
(1.6%) OZRK (4.2%)
4 BAC (8.2%) BRK.B (5.8%) BAC (5.1%) RE (1.0%) BRK.B (5.8%) AIZ
(1.6%) JPM (4.1%)
5 C (5.7%) C (4.8%) V (3.7%) SQ (1.0%) C (4.8%) WLTW (1.6%) HBAN
(3.8%)
6 GS (2.9%) USB (2.5%) C (3.6%) TROW (1.0%) USB (2.5%) XL (1.6%)
PFG (3.3%)
7 USB (2.8%) GS (2.3%) MA (2.4%) NAVI (1.0%) GS (2.3%) CBOE
(1.6%) PRU (3.1%)
8 CB (2.2%) AIG (1.8%) GS (1.8%) CXW (1.0%) CB (1.8%) AFL (1.6%)
ETFC (2.7%)
9 MS (2.1%) CB (1.8%) USB (1.8%) FNF (1.0%) AIG (1.8%) ALL
(1.6%) MKTX (2.5%)
10 AXP (2.0%) AXP (1.7%) CB (1.4%) TRU (1.0%) AXP (1.7%) IVZ
(1.6%) WAL (2.5%)
Source: Deutsche Bank, Bloomberg Finance LP, FactSet. Data as of
May 4th 2017 or latest available. Inv. Adv.: Investment Adviser;
PB/WM: Private Bank/Wealth Management; HF: Hedge Fund;PF: Pension
Fund; MF: Mutual Fund.
Page 12 Deutsche Bank Securities Inc.
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US ETF Model Portfolios
Figure 12: Product comparison for European Equity Exposure
Ticker VGK IEV DBEU IEUR HEDJ EZU FEZ
Geo Focus Europe Europe Europe Europe Eurozone Eurozone
Eurozone
Strategy Focus Cheap Core Market Access FX Hedged Cheap Core FX
Hedged Market Access Mega Cap
Issuer Vanguard BlackRock Deutsche AM BlackRock WisdomTree
BlackRock SSGA
Index Family FTSE S&P MSCI MSCI WisdomTree MSCI STOXX
TER 0.10% 0.60% 0.45% 0.10% 0.58% 0.48% 0.29%
AUM $MM 12,367 2,739 2,668 2,073 9,872 10,675 3,504
20D ADV $MM 213.5 24.0 35.9 15.6 110.3 268.1 184.3
Implied Liquidity $MM 191 2,213 2,513 219 385 744 1,633
Total Liquidity $MM 404 2,237 2,549 235 495 1,012 1,817
5D Bid/Ask Spread $ 0.01 0.01 0.01 0.02 0.01 0.01 0.01
5D Bid/Ask Spread bps 1.9 2.4 3.8 4.6 1.6 2.5 2.6
Short Int as % Shr. Out 2.1% 1.2% 1.4% 0.4% 1.5% n.a. 7.4%
Option Not. Volume $MM 20.4 0.1 0.0 - 10.3 1.3 107.0
Option Not. Open Int. $MM 810.2 7.0 - - 340.3 35.8 3,536.1
Ownership VGK IEV DBEU IEUR HEDJ EZU FEZ
# of Institutional Owners 464 208 122 82 369 26 185
Institutional 49% 40% 60% 72% 47% 25% 38%
Retail 51% 60% 40% 28% 53% 75% 62%
Top 5 Inst. Investor Types VGK IEV DBEU IEUR HEDJ EZU FEZ
1 Inv. Adv. (28%) PB/WM (18%) Inv. Adv. (33%) Inv. Adv. (59%)
Inv. Adv. (24%) Inv. Adv. (17%) Inv. Adv. (16%)
2 PB/WM (12%) Inv. Adv. (17%) PB/WM (18%) PB/WM (12%) PB/WM
(18%) PF (7%) PB/WM (13%)
3 MF (2%) PF (2%) Broker (6%) Broker (1%) Broker (2%) HF (0%)
Broker (6%)
4 Broker (2%) MF (1%) Ins. Co. (1%) MF (0%) MF (2%) MF (0%) MF
(3%)
5 Foun/Endo. (1%) Broker (1%) MF (0%) Ins. Co. (0%) PF (1%)
PB/WM (0%) HF (1%)
Exposure by Market Cap VGK IEV DBEU IEUR HEDJ EZU FEZ
Large Cap 87.4% 98.2% 99.1% 88.1% 96.1% 98.8% 99.7%
Mid Cap 7.3% 1.0% 0.9% 8.0% 3.2% 0.6% 0.0%
Small Cap 3.3% 3.3% 0.6%
Exposure by Country VGK IEV DBEU IEUR HEDJ EZU FEZ
United Kingdom 24.7% 24.3% 24.1% 24.7% 4.1% 3.2% 3.0%
Switzerland 13.7% 14.9% 14.6% 13.8% 1.3% 0.2%
Germany 13.9% 14.3% 14.9% 14.3% 25.0% 29.0% 32.9%
France 14.6% 15.5% 16.1% 14.9% 27.2% 31.6% 36.0%
Netherlands 5.9% 6.4% 6.7% 6.4% 8.9% 8.2% 6.6%
Spain 5.2% 5.3% 5.4% 5.3% 19.3% 10.6% 10.9%
Sweden 4.9% 4.6% 4.5% 5.0%
Italy 3.7% 3.4% 3.1% 3.6% 1.6% 6.0% 4.6%
Other Europe Non-EU 5.9% 3.7% 3.8% 4.0%
Other Eurozone 6.0% 5.4% 5.3% 6.1% 12.5% 10.4% 5.7%
Other 1.2% 1.5% 1.6% 1.4% 0.7% 0.0%
Exposure by Sectors VGK IEV DBEU IEUR HEDJ EZU FEZ
Consumer Discretionary 11.3% 10.7% 11.0% 11.3% 18.2% 13.9%
11.4%
Consumer Staples 12.5% 14.0% 13.9% 12.7% 16.0% 10.5% 10.8%
Energy 6.3% 7.0% 6.7% 6.2% 1.0% 5.1% 6.2%
Financials 19.6% 20.6% 20.8% 19.8% 14.5% 20.4% 22.5%
Health Care 12.2% 13.1% 12.9% 12.3% 9.5% 8.0% 10.4%
Industrials 14.4% 13.3% 13.4% 14.6% 18.8% 15.2% 14.5%
Information Technology 4.6% 4.0% 4.5% 5.2% 7.8% 7.5% 6.9%
Materials 7.9% 7.9% 8.0% 7.9% 8.4% 8.3% 6.3%
Real Estate 2.3% 1.1% 1.4% 2.4% 1.7% 0.9%
Telecommunication Services 3.6% 3.9% 4.0% 3.7% 5.6% 4.4%
5.2%
Utilities 3.4% 3.6% 3.5% 3.4% 0.2% 4.5% 4.6%
Concentration VGK IEV DBEU IEUR HEDJ EZU FEZ
Total # of Holdings 1267 368 457 985 134 244 53
Top 1 2.5% 2.9% 2.7% 2.4% 5.6% 2.7% 4.7%
Top 5 9.3% 11.1% 10.1% 9.0% 25.3% 12.4% 21.0%
Top 10 15.1% 17.9% 16.4% 14.6% 43.8% 22.7% 37.6%
Top 10 Holdings VGK IEV DBEU IEUR HEDJ EZU FEZ
1 NESN VX (2.5%) NESN VX (2.9%) NESN VX (2.7%) NESN VX (2.4%)
TEF SM (5.6%) FP FP (2.7%) FP FP (4.7%)
2 ROG VX (1.9%) NOVN VX (2.4%) ROG VX (2.1%) ROG VX (1.9%) BBVA
SM (5.6%) SAN FP (2.6%) SIE GR (4.5%)
3 NOVN VX (1.9%) ROG VX (2.2%) NOVN VX (2.0%) NOVN VX (1.7%) SIE
GR (4.8%) SIE GR (2.6%) SAN FP (4.3%)
4 HSBA LN (1.7%) HSBA LN (2.0%) HSBA LN (1.9%) HSBA LN (1.6%)
SAN SM (4.8%) BAYN GR (2.3%) BAYN GR (3.8%)
5 BATS LN (1.3%) BATS LN (1.5%) BATS LN (1.4%) BATS LN (1.3%)
SAN FP (4.4%) SAP GR (2.3%) SAP GR (3.8%)
6 RDSA LN (1.2%) FP FP (1.5%) FP FP (1.3%) FP FP (1.2%) ABI BB
(4.3%) SAN SM (2.2%) SAN SM (3.6%)
7 FP FP (1.2%) RDSA LN (1.4%) RDSA LN (1.3%) RDSA LN (1.1%) DAI
GR (4.2%) BAS GR (2.1%) BAS GR (3.4%)
8 BP/ LN (1.2%) SAN FP (1.3%) SIE GR (1.3%) SAN FP (1.1%) UNA NA
(3.7%) ALV GR (2.0%) ABI BB (3.3%)
9 SIE GR (1.1%) SIE GR (1.3%) SAN FP (1.2%) SIE GR (1.1%) MC FP
(3.3%) UNA NA (2.0%) ALV GR (3.2%)
10 RDSB LN (1.1%) BP/ LN (1.3%) BP/ LN (1.2%) BP/ LN (1.1%) BAYN
GR (3.0%) ABI BB (2.0%) UNA NA (3.1%)
Source: Deutsche Bank, Bloomberg Finance LP, FactSet. Data as of
May 4th 2017 or latest available. Inv. Adv.: Investment Adviser;
PB/WM: Private Bank/Wealth Management; HF: Hedge Fund;PF: Pension
Fund; MF: Mutual Fund.
Deutsche Bank Securities Inc. Page 13
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US ETF Model Portfolios
Figure 13: Product comparison for EM Asia Equity ExposureTicker
GMF EEMA
Issuer SSGA BlackRock
Index Family S&P MSCI
TER 0.49% 0.49%
AUM $MM 342 333
20D ADV $MM 1.7 1.5
Implied Liquidity $MM 0 486
Total Liquidity $MM 2 487
5D Bid/Ask Spread $ 0.20 0.16
5D Bid/Ask Spread bps 22.7 26.5
Short Int as % Shr. Out 1.4% 0.3%
Option Not. Volume $MM 0.0 0.0
Option Not. Open Int. $MM 0 0
Ownership GMF EEMA
# of Institutional Owners 74 38
Institutional 49% 41%
Retail 51% 59%
Top 5 Inst. Investor Types GMF EEMA
1 PB/WM (25%) PB/WM (20%)
2 Inv. Adv. (19%) Broker (10%)
3 Broker (4%) Inv. Adv. (9%)
4 MF (1%) MF (1%)
5 HF (0%) Ins. Co. (1%)
Exposure by Country GMF EEMA
Large Cap 79.1% 89.4%
Mid Cap 11.2% 9.0%
Small Cap 9.3% 1.4%
Exposure by Country GMF EEMA
China 42.7% 36.2%
South Korea 21.3%
Taiwan 22.1% 17.2%
India 18.1% 12.3%
Malaysia 4.3% 3.5%
Thailand 4.2% 3.1%
Indonesia 4.1% 3.6%
Philippines 2.3% 1.7%
Hong Kong 1.8% 0.7%
Other 0.5% 0.6%
Concentration GMF EEMA
Total # of Holdings 743 555
Top 1 5.6% 6.1%
Top 5 18.0% 22.8%
Top 10 25.4% 30.6%
Top 10 Holdings GMF EEMA
1 700 HK (5.6%) 005930 KS (6.1%)
2 BABA US (4.1%) 700 HK (5.5%)
3 TSM US (3.9%) 2330 TT (5.0%)
4 939 HK (2.4%) BABA US (4.0%)
5 941 HK (2.0%) 939 HK (2.1%)
6 2317 TT (1.7%) 941 HK (2.0%)
7 1398 HK (1.6%) 2317 TT (1.6%)
8 BIDU US (1.6%) BIDU US (1.5%)
9 HDFC IN (1.3%) 1398 HK (1.5%)
10 RIGD LI (1.2%) 3988 HK (1.2%)
Source: Deutsche Bank, Bloomberg Finance LP, FactSet. Data as of
May 4th 2017 or latest available. Inv. Adv.: Investment Adviser;
PB/WM:Private Bank/Wealth Management; HF: Hedge Fund; PF: Pension
Fund; MF: Mutual Fund.
Page 14 Deutsche Bank Securities Inc.
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Figure 14: Product comparison for Short Duration HY Credit
ExposureTicker SJNK SHYG HYS HYHG HYGH
FocusShort Duration
HY
Short Duration
HY
Short Duration
HY
Interest Rate
Hedged HY
Interest Rate
Hedged HY
Issuer SSGA BlackRock PIMCO ProShares BlackRock
Index Family BBG Barclays iBoxx Active Citigroup iBoxx
TER 0.40% 0.30% 0.55% 0.50% 0.55%
AUM $MM 3,759 2,450 1,879 136 217
20D ADV $MM 47.6 18.7 48.7 1.2 1.3
5D Bid/Ask Spread $ 0.01 0.02 0.05 0.30 0.04
5D Bid/Ask Spread bps 3.7 3.6 5.1 43.4 4.6
Short Int as % Shr. Out 0.1% 0.2% 7.7% n.a. 0.2%
Option Not. Volume $MM 0.0 - 0.0 - -
Option Not. Open Int. $MM 0.7 - 1.3 - -
Ownership SJNK SHYG HYS HYHG HYGH
# of Institutional Owners 224 115 207 n.a. n.a.
Institutional 72% 84% 67% n.a. n.a.
Retail 28% 16% 33% n.a. n.a.
Top 5 Inst. Investor Types SJNK SHYG HYS HYHG HYGH
1 Inv. Adv. (58%) Inv. Adv. (79%) Inv. Adv. (41%) n.a. n.a.
2 PB/WM (13%) PB/WM (5%) Broker (14%) n.a. n.a.
3 PF (1%) Broker (0%) PB/WM (9%) n.a. n.a.
4 Broker (1%) HF (0%) MF (2%) n.a. n.a.
5 MF (1%) MF (0%) HF (0%) n.a. n.a.
Portfolio Characteristics SJNK SHYG HYS HYHG HYGH
Yield-to-Worst 6.3 5.36 6.82 5.8 5.34
Modified Duration 2.06 2.15 2.24 Hedged Hedged
Option-Adj-Spread (bps) 473 364 518 365 326
Credit Quality (BBG) B+ B+ B+ B+ B+
Source: Deutsche Bank, Bloomberg Finance LP, FactSet. Data as of
May 4th 2017 or latest available. Inv. Adv.: Investment Adviser;
PB/WM:Private Bank/Wealth Management; HF: Hedge Fund; PF: Pension
Fund; MF: Mutual Fund.
Portfolio constituents correlations
Pair-wise correlations within the HVP provide a high level idea
of the potentialdiversification benefits of the portfolio
constituents.
Figure 15: Correlations for HVP constituents and main asset
classes
EquityReal
Estate
Fixed
IncomeComdty Crncy
DIA QQQ XLF VGK EEMA SJNK TIP UUP SPY VNQ BND DBC UUP
DIA 1.00 0.96 0.38 -0.24 0.31 -0.13
QQQ 0.81 1.00 0.90 0.37 -0.07 0.19 -0.14
XLF 0.84 0.59 1.00 0.80 0.15 -0.51 0.23 0.03
VGK 0.74 0.70 0.62 1.00 0.78 0.27 -0.12 0.35 -0.52
EEMA 0.62 0.68 0.41 0.67 1.00 0.68 0.36 0.12 0.34 -0.34
SJNK 0.65 0.67 0.51 0.65 0.65 1.00 0.73 0.43 0.06 0.43 -0.21
TIP -0.10 -0.01 -0.32 -0.02 0.20 0.12 1.00 -0.04 0.34 0.83 0.13
-0.36
UUP -0.13 -0.14 0.03 -0.52 -0.34 -0.21 -0.36 1.00 -0.15 -0.13
-0.35 -0.24 1.00
1 Year
Daily
Correl.
Portfolio Constituents
Source: Deutsche Bank, FactSet. As of 5 May 2017
Deutsche Bank Securities Inc. Page 15
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9 May 2017
US ETF Model Portfolios
ETF Standard ComparisonThis section presents standard
performance and fee & expense information aboutall the ETFs
mentioned in the present report.
Figure 16: Average Annual Total Returns#
Average Annual Total ReturnsData as of Mar 31, 2017
Ticker NameInception
Date One Year Five Year Ten Year
Since
Inception Prospectus available at
ETFs
BBH VanEck Vectors Biotech ETF 12/21/2011 15.21% 22.05% n.a.
25.99% www.vaneck.com
BKLN PowerShares Senior Loan Portfolio 3/3/2011 7.26% 3.38% n.a.
3.18% www.invescopowershares.com
DVY iShares Select Dividend ETF 11/7/2003 15.17% 13.97% 6.29%
us.ishares.com
DXJ WisdomTree Japan Hedged Equity Fund 6/16/2006 17.44% 11.61%
1.87% www.wisdomtree.com
EPI WisdomTree India Earnings Fund 2/22/2008 25.59% 5.69% n.a.
0.47% www.wisdomtree.com
EUFN iShares MSCI Europe Financials ETF 2/3/2010 17.66% 5.94%
n.a. 1.57% us.ishares.com
EWG iShares MSCI Germany ETF 3/18/1996 14.06% 6.70% 2.41%
us.ishares.com
EWP iShares MSCI Spain Capped ETF 3/18/1996 16.85% 5.15% -1.27%
us.ishares.com
EZU iShares MSCI Eurozone ETF 7/31/2000 12.31% 6.54% -0.46%
us.ishares.com
FXI iShares China Large-Cap ETF 10/8/2004 16.45% 3.63% 3.24%
us.ishares.com
GMF SPDR S&P Emerging Asia Pacific ETF 3/23/2007 18.50%
5.38% 5.87% www.spdrs.com
HYS PIMCO 0-5 Year High Yield Corporate Bond Index
ETF6/17/2011 14.34% 5.43% n.a. 5.44% www.pimco.com
IVV iShares Core S&P 500 ETF 5/19/2000 17.11% 13.24% 7.46%
us.ishares.com
JNK SPDR Barclays High Yield Bond ETF 12/4/2007 14.81% 4.92%
n.a. 5.78% www.spdrs.com
KBWB PowerShares KBW Bank Portfolio 11/1/2011 45.89% 15.04% n.a.
19.71% www.invescopowershares.com
MCHI iShares MSCI China ETF 3/31/2011 18.94% 5.04% n.a. 1.74%
us.ishares.com
PCY PowerShares Emerging Markets Sovereign Debt
Portfolio10/11/2007 8.18% 5.76% n.a. 7.05%
www.invescopowershares.com
QDF FlexShares Quality Dividend Index Fund 12/19/2012 16.71%
n.a. n.a. 14.95% www.flexshares.com
QQQ PowerShares QQQ 3/10/1999 22.48% 15.80% 12.76%
www.invescopowershares.com
SDY SPDR S&P Dividend ETF 11/15/2005 14.01% 14.04% 8.00%
www.spdrs.com
VTIP Vanguard Short-Term Inflation-Protected Securities
ETF10/16/2012 1.59% n.a. n.a. 0.23% www.vanguard.com
USMV iShares Edge MSCI Min Vol USA ETF 10/20/2011 10.88% 13.43%
n.a. 14.66% us.ishares.com
VGT Vanguard Information Technology ETF 1/30/2004 25.37% 14.28%
11.01% www.vanguard.com
VIG Vanguard Dividend Appreciation ETF 4/27/2006 13.14% 11.37%
7.60% www.vanguard.com
XLF Financial Select Sector SPDR Fund 12/22/1998 32.35% 15.19%
0.10% www.spdrs.com
UUP PowerShares DB US Dollar Index Bullish Fund 2/20/2007 5.71%
3.42% 0.58% www.invescopowershares.com
XRT SPDR S&P Retail ETF 6/22/2006 -7.23% 7.90% 8.27%
www.spdrs.com
XLU Utilities Select Sector SPDR Fund 12/22/1998 6.92% 11.92%
6.48% www.spdrs.com
HEDJ WisdomTree Europe Hedged Equity Fund 12/31/2009 24.20%
12.25% n.a. 8.39% www.wisdomtree.com
HYG iShares iBoxx $ High Yield Corporate Bond ETF 4/11/2007
13.40% 5.29% n.a. 5.64% us.ishares.com
ASHR Deutsche X-trackers Harvest CSI 300 China A-
Shares ETF11/6/2013 2.92% n.a. n.a. 8.89%
etfus.deutscheawm.com
DBEU Deutsche X-trackers MSCI Europe Hedged Equity
ETF10/1/2013 20.60% n.a. n.a. 8.16% etfus.deutscheawm.com
IBB iShares Nasdaq Biotechnology ETF 2/9/2001 12.75% 19.15%
14.71% us.ishares.com
LQD iShares iBoxx $ Investment Grade Corporate Bond
ETF7/26/2002 2.64% 4.02% 5.47% us.ishares.com
IEF iShares 7-10 Year Treasury Bond ETF 7/26/2002 -2.60% 2.30%
5.24% us.ishares.com
EFAV iShares Edge MSCI Min Vol EAFE ETF 10/20/2011 2.82% 7.80%
n.a. 8.14% us.ishares.com
VTI Vanguard Total Stock Market ETF 5/31/2001 18.07% 13.14%
7.69% us.ishares.com
TIP iShares TIPS Bond ETF 12/5/2003 1.36% 0.85% 4.10%
us.ishares.com
DIA SPDR Dow Jones Industrial Average ETF 1/20/1998 19.69%
11.97% 7.93% www.spdrs.com
VGK Vanguard FTSE Europe ETF 3/10/2005 9.94% 5.95% 1.01%
www.vanguard.com
EEMA iShares MSCI Emerging Markets Asia ETF 2/9/2012 17.43%
4.06% n.a. 3.63% us.ishares.com
SJNK SPDR Bloomberg Barclays Short Term High Yield
Bond ETF3/15/2012 14.86% 4.35% n.a. 4.30% www.spdrs.com
Indices*
SPTR S&P United States 500 Total Return 17.17% 13.30%
7.51%
NDUEACWF MSCI AC World Daily TR Net USD 15.04% 8.37% 4.00%
LBUSTRUU Barclays US Aggregate TR Value Un-hedged USD 0.44%
2.34% 4.27%
Notes: Since Inception performance data is provided for those
ETFs which do not have full 10 Year performance history.
Performance calculations are based on total returns (i.e.
reinvested dividends). Price utilized corresponds to ETF NAV.
*Index
returns do not reflect deductions for fees, expenses, or
taxes.
Source: Deutsche Bank, Bloomberg Finance LP. Additional
information can be found in the prospectus for each fund at their
respective Issuer’s ETF websites
Page 16 Deutsche Bank Securities Inc.
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9 May 2017
US ETF Model Portfolios
#Performance data quoted represents past performance. Past
performance is nota guarantee of future results and current
performance may be higher or lowerthan performance quoted.
Investment returns and principal value will fluctuateand shares
when sold or redeemed, may be worth more or less than their
originalcost.
Figure 17: Fees and Expenses
Data as of most current prospectus
Ticker NameProspectus
Date
Manage-
ment Fee
Distribution
and Service
(12b-1) Fees
Other
Expenses
Acquired
Fund Fees
and
Expenses
Total
Annual
Fund
Operating
Expenses
Fee
Waiver
Total Annual
Fund Operating
Expenses After
Fee Waiver
ETFs
BBH VanEck Vectors Biotech ETF 2/1/2017 0.35% None 0.05% None
0.40% 0.05% 0.35%
BKLN PowerShares Senior Loan Portfolio 2/24/2017 0.65% None None
0.01% 0.66% 0.01% 0.65%
DVY iShares Select Dividend ETF 9/1/2016 0.39% None None None
0.39% None 0.39%
DXJ WisdomTree Japan Hedged Equity Fund 8/1/2016 0.48% None None
None 0.48% None 0.48%
EPI WisdomTree India Earnings Fund 8/1/2016 0.83% None 0.01%
None 0.84% None 0.84%
EUFN iShares MSCI Europe Financials ETF 12/1/2016 0.48% None
None None 0.48% None 0.48%
EWG iShares MSCI Germany ETF 12/30/2016 0.48% None None None
0.48% None 0.48%
EWP iShares MSCI Spain Capped ETF 12/30/2016 0.48% None None
None 0.48% None 0.48%
EZU iShares MSCI Eurozone ETF 12/30/2016 0.48% None None None
0.48% None 0.48%
FXI iShares China Large-Cap ETF 12/1/2016 0.74% None None None
0.74% None 0.74%
GMF SPDR S&P Emerging Asia Pacific ETF 1/31/2017 0.49% None
None None 0.49% None 0.49%
HYS PIMCO 0-5 Year High Yield Corporate Bond Index ETF
10/31/2016 0.55% None None None 0.55% None 0.55%
IVV iShares Core S&P 500 ETF 8/1/2016 0.04% None None None
0.04% None 0.04%
JNK SPDR Bloomberg Barclays High Yield Bond ETF 10/31/2016 0.40%
None None None 0.40% None 0.40%
KBWB PowerShares KBW Bank Portfolio 2/24/2017 0.35% None None
None 0.35% None 0.35%
MCHI iShares MSCI China ETF 12/30/2016 0.64% None None None
0.64% None 0.64%
PCY PowerShares Emerging Markets Sovereign Debt Portfolio
2/24/2017 0.50% None None None 0.50% None 0.50%
QDF FlexShares Quality Dividend Index Fund 3/1/2017 0.37% None
0.01% None 0.38% 0.01% 0.37%
QQQ PowerShares QQQ 1/31/2017 0.06% None 0.14% None 0.20% None
0.20%
SDY SPDR S&P Dividend ETF 10/31/2016 0.35% None None None
0.35% None 0.35%
VTIP Vanguard Short-Term Inflation-Protected Securities ETF
1/26/2017 0.05% None 0.02% None 0.07% None 0.07%
USMV iShares Edge MSCI Min Vol USA ETF 12/1/2016 0.15% None None
None 0.15% None 0.15%
VGT Vanguard Information Technology ETF 12/22/2016 0.09% None
0.01% None 0.10% None 0.10%
VIG Vanguard Dividend Appreciation ETF 5/25/2016 0.08% None
0.01% None 0.09% None 0.09%
XLF Financial Select Sector SPDR Fund 1/31/2017 0.04% 0.04%
0.06% None 0.14% None 0.14%
UUP PowerShares DB US Dollar Index Bullish Fund 3/10/2017 0.75%
0.05% None None 0.80% None 0.80%
XRT SPDR S&P Retail ETF 10/31/2016 0.35% None None None
0.35% None 0.35%
XLU Utilities Select Sector SPDR Fund 1/31/2017 0.04% 0.04%
0.06% None 0.14% None 0.14%
HEDJ WisdomTree Europe Hedged Equity Fund 8/1/2016 0.58% None
None None 0.58% None 0.58%
HYG iShares iBoxx $ High Yield Corporate Bond ETF 7/1/2016 0.50%
None None None 0.50% None 0.50%
ASHR Deutsche X-trackers Harvest CSI 300 China A-Shares ETF
9/30/2016 0.65% None None None 0.65% None 0.65%
DBEU Deutsche X-trackers MSCI Europe Hedged Equity ETF 9/30/2016
0.45% None None None 0.45% None 0.45%
IBB iShares Nasdaq Biotechnology ETF 8/1/2016 0.47% None None
None 0.47% None 0.47%
LQD iShares iBoxx $ Investment Grade Corporate Bond ETF 7/1/2016
0.15% None None None 0.15% None 0.15%
IEF iShares 7-10 Year Treasury Bond ETF 7/1/2016 0.15% None None
None 0.15% None 0.15%
EFAV iShares Edge MSCI Min Vol EAFE ETF 12/1/2016 0.32% None
None None 0.32% 0.12% 0.20%
VTI Vanguard Total Stock Market ETF 4/27/2017 0.04% None None
None 0.04% None 0.04%
TIP iShares TIPS Bond ETF 3/1/2017 0.20% None None None 0.20%
None 0.20%
DIA SPDR Dow Jones Industrial Average ETF 2/14/2017 0.06% None
0.11% None 0.17% None 0.17%
VGK Vanguard FTSE Europe ETF 2/24/2017 0.08% None 0.02% None
0.10% None 0.10%
EEMA iShares MSCI Emerging Markets Asia ETF 12/30/2016 0.49%
None None None 0.49% None 0.49%
SJNK SPDR Bloomberg Barclays Short Term High Yield Bond ETF
10/31/2016 0.40% None None None 0.40% None 0.40%
Notes: You may also incur usual and customary brokerage
commissions when buying or selling shares of the Funds, which are
not reflected in the fees above. Fee waivers are
temporary. Fund prospectus should be consulted for additional
details.
Source: You may also incur usual and customary brokerage
commissions when buying or selling shares of the Funds, which are
not reflected in the fees above. Fee waivers are temporary.
Fundprospectus should be consulted for additional details.
Deutsche Bank Securities Inc. Page 17
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9 May 2017
US ETF Model Portfolios
Appendix 1
Important Disclosures
*Other information available upon request
*Prices are current as of the end of the previous trading
session unless otherwise indicated and are sourced fromlocal
exchanges via Reuters, Bloomberg, and other vendors. Other
information is sourced from Deutsche Bank, subjectcompanies, and
other sources. For disclosures pertaining to recommendations or
estimates made on securities other thanthe primary subject of this
research, please see the most recently published company report or
visit our global disclosurelook-up page on our website at
http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside
from within this report,important conflict disclosures can also be
found at https://gm/db.com/equities under the "Disclosures Lookup"
and "Legal"tabs. Investors are strongly encouraged to review this
information before investing.
Analyst Certification
The views expressed in this report accurately reflect the
personal views of the undersigned lead analyst(s). In addition,the
undersigned lead analyst(s) has not and will not receive any
compensation for providing a specific recommendationor view in this
report. Sebastian Mercado
Hypothetical Disclaimer
Backtested, hypothetical or simulated performance results have
inherent limitations. Unlike an actual performancerecord based on
trading actual client portfolios, simulated results are achieved by
means of the retroactive applicationof a backtested model itself
designed with the benefit of hindsight. Taking into account
historical events the backtestingof performance also differs from
actual account performance because an actual investment strategy
may be adjustedany time, for any reason, including a response to
material, economic or market factors. The backtested
performanceincludes hypothetical results that do not reflect the
reinvestment of dividends and other earnings or the deduction
ofadvisory fees, brokerage or other commissions, and any other
expenses that a client would have paid or actually paid.No
representation is made that any trading strategy or account will or
is likely to achieve profits or losses similar tothose shown.
Alternative modeling techniques or assumptions might produce
significantly different results and prove tobe more appropriate.
Past hypothetical backtest results are neither an indicator nor
guarantee of future returns. Actualresults will vary, perhaps
materially, from the analysis.
Equity Rating Key Equity rating dispersion and banking
relationships
Buy: Based on a current 12- month view of total
share-holderreturn (TSR = percentage change in share price from
currentprice to projected target price plus pro-jected dividend
yield ) ,we recommend that investors buy the stock.Sell: Based on a
current 12-month view of total share-holderreturn, we recommend
that investors sell the stock.Hold: We take a neutral view on the
stock 12-months out and,based on this time horizon, do not
recommend either a Buyor Sell.
Newly issued research recommendations and target pricessupersede
previously published research.
Regulatory Disclosures
Page 18 Deutsche Bank Securities Inc.
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US ETF Model Portfolios
1.Additional InformationInformation on ETFs is provided strictly
for illustrative purposes and should not be deemed an offer to sell
or asolicitation of an offer to buy shares of any fund that is
described in this document. Consider carefully any fund'sinvestment
objectives, risk factors, and charges and expenses before
investing. This and other information can be foundin the fund's
prospectus. Prospectuses about db X-trackers funds and Powershares
DB funds can be obtained by calling1-877-369-4617 or by visiting
www.DBXUS.com. Read prospectuses carefully before investing. Past
performance is notnecessarily indicative of future results.
Investing involves risk, including possible loss of principal. To
better understandthe similarities and differences between
investments, including investment objectives, risks, fees and
expenses, it isimportant to read the products' prospectuses. Shares
of ETFs may be sold throughout the day on an exchange throughany
brokerage account. However, shares may only be redeemed directly
from an ETF by authorized participants, in verylarge
creation/redemption units. Transactions in shares of ETFs will
result in brokerage commissions and will generatetax consequences.
ETFs are obliged to distribute portfolio gains to shareholders.
Deutsche Bank may be an issuer,advisor, manager, distributor or
administrator of, or provide other services to, an ETF included in
this report, for which itreceives compensation. db X-trackers and
Powershares DB funds are distributed by ALPS Distributors, Inc. The
opinionsexpressed are those of the authors and do not necessarily
reflect the views of DB, ALPS or their affiliates.
Aside from within this report, important conflict disclosures
can also be found at https://gm.db.com/equities under
the"Disclosures Lookup" and "Legal" tabs. Investors are strongly
encouraged to review this information before investing.
Deutsche Bank Securities Inc. Page 19
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US ETF Model Portfolios
Additional Information?The information and opinions in this
report were prepared by Deutsche Bank AG or one of its affiliates
(collectively"Deutsche Bank"). Though the information herein is
believed to be reliable and has been obtained from public
sourcesbelieved to be reliable, Deutsche Bank makes no
representation as to its accuracy or completeness.
If you use the services of Deutsche Bank in connection with a
purchase or sale of a security that is discussed in this report,or
is included or discussed in another communication (oral or written)
from a Deutsche Bank analyst, Deutsche Bank mayact as principal for
its own account or as agent for another person.
Deutsche Bank may consider this report in deciding to trade as
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or with customers, in a manner inconsistent with the views taken in
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Opinions, estimates and projections constitute the current
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necessarily reflect the opinions of Deutsche Bank and are subject
to change without notice. Deutsche Bank providesliquidity for
buyers and sellers of securities issued by the companies it covers.
Deutsche Bank research analysts sometimeshave shorter-term trade
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Target prices are inherently imprecise and a product of the
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availability of financial instruments are subject to change
withoutnotice and investment transactions can lead to losses as a
result of price fluctuations and other factors. If a
financialinstrument is denominated in a currency other than an
investor's currency, a change in exchange rates may adverselyaffect
the investment. Past performance is not necessarily indicative of
future results. Unless otherwise indicated, pricesare current as of
the end of the previous trading session, and are sourced from local
exchanges via Reuters, Bloombergand other vendors. Data is sourced
from Deutsche Bank, subject companies, and in some cases, other
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The Deutsche Bank Research Department is independent of other
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is available on our website under Disclaimer found on the Legal
tab.??Macroeconomic fluctuations often account for most of the
risks associated with exposures to instruments that promiseto pay
fixed or variable interest rates. For an investor who is long fixed
rate instruments (thus receiving these cash flows),increases in
interest rates naturally lift the discount factors applied to the
expected cash flows and thus cause a loss.
Page 20 Deutsche Bank Securities Inc.
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US ETF Model Portfolios
The longer the maturity of a certain cash flow and the higher
the move in the discount factor, the higher will be theloss. Upside
surprises in inflation, fiscal funding needs, and FX depreciation
rates are among the most common adversemacroeconomic shocks to
receivers. But counterparty exposure, issuer creditworthiness,
client segmentation, regulation(including changes in assets holding
limits for different types of investors), changes in tax policies,
currency convertibility(which may constrain currency conversion,
repatriation of profits and/or the liquidation of positions), and
settlement issuesrelated to local clearing houses are also
important risk factors to be considered. The sensitivity of fixed
income instrumentsto macroeconomic shocks may be mitigated by
indexing the contracted cash flows to inflation, to FX
depreciation, or tospecified interest rates – these are common in
emerging markets. It is important to note that the index fixings
may -- byconstruction -- lag or mis-measure the actual move in the
underlying variables they are intended to track. The choice of
theproper fixing (or metric) is particularly important in swaps
markets, where floating coupon rates (i.e., coupons indexed toa
typically short-dated interest rate reference index) are exchanged
for fixed coupons. It is also important to acknowledgethat funding
in a currency that differs from the currency in which coupons are
denominated carries FX risk. Naturally,options on swaps (swaptions)
also bear the risks typical to options in addition to the risks
related to rates movements.??Derivative transactions involve
numerous risks including, among others, market, counterparty
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aresult of the high degree of leverage obtainable in futures and
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areaffected by the currency of an underlying security, effectively
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Unless governing law provides otherwise, all transactions should
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disclosures can also be found at https://gm.db.com/equities under
the "Disclosures Lookup" and "Legal" tabs. Investors are strongly
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acting through its London Branch at WinchesterHouse, 1 Great
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Deutsche Bank Securities Inc. Page 21
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