db x-trackers has launched a Ucits III compliant exchange-traded fund linked to the linked to the iBoxx EUR Liquid Corporate 100 Index.

With assets under management of more than EUR 4.5bn, the market for ETFs linked to corporate bond indices is one of the largest in the European fixed income ETF space.

However, due to a high degree of uncertainty with regards to the liquidity of the market for corporate bonds, many existing ETFs can suffer from risks such as tracking error against the underlying index, or a low degree of secondary market liquidity for the ETF.

Whilst the impact of the former has the tendency to decrease with an increasing holding period, the latter can pose a significant risk to holders and potential investors in such an ETF.

The new db x-trackers II iBoxx EUR Liquid Corporate 100 Total Return Index ETF aims to address these two risk factors by aiming to provide a minimal tracking error to the index through the use of a synthetic replication structure, and ensure a high degree of liquidity and price consistency with Deutsche Bank as market maker.

In normal market conditions it is envisaged to maintain a bid-offer spread of 0.80 per cent with around EUR5m on exchange liquidity and significantly higher sizes for OTC.

The iBoxx EUR Liquid Corporate 100 Index represents the performance of up to 100 Euro denominated corporate bonds taking into account re-balancing costs and is sponsored by International Index Company, a subsidiary of Markit.