Deutsche Bank has launched a new proprietary fixed income index called dbSmart, which aims to make institutional investors money on the fixed income market by using sophisticated quantitative analysis.
The dbSmart index is completely driven by quantitative research and involves no subjective elements in the decision making process, so there is little correlation to interest rate levels.
Rich Herman, head of global rates in
dbSmart includes a filtering process that steepens and flattens positions on the euro yield curve with the aim of capturing the direction of the term premium. It includes long and short positions to help lower the correlation to slope levels. This means that investors have an opportunity to make money irrespective of actual interest rate levels, or the slope of the yield curve.
Clients can invest in the index through a number of the bank’s products; either in a funded format, including structured notes and tradable mutual funds, or unfunded, such as options and swaps.
Deutsche Bank has already launched a number of indices that are intended to provide alpha through transparent rule-based investment methodologies. Examples of other quantitative fixed income strategies include FIRST (the Forward Interest Rate Strategy), which Deutsche Bank launched in 2004. FIRST is based on the idea that money market forward rates have a large propensity to over-predict future realised rates.