Deutsche Bank represents its first UCITS III in order to make TIPS cheaper

The first Undertakings for Collective investment in Transferable Securities III (UCITS III) fund was launched by Deutsche Bank. The main goal is to let investors access the US inflation-linked Treasury bond (TIPS) market in a convenient format. The Platinum IV Enhanced US Treasury fund offers the exposure to US inflation-protected US Treasuries. Thereby, as a result of increased investor interest in this market, Deutsche Bank anticipates the significant growth of money influx.  

The main idea of the fund is to make TIPS cheaper than they should be in fundamental terms and also cheap on a relative basis compared to inflation swaps that will allow to get benefits. It works in the following way: the fund invests in US government inflation linked bonds (TIPS) and hedges direct inflation, interest rate and FX risks trough swap transactions with Deutsche Bank. The counterparty risk is kept to negligible levels (less than 1%) so that investors holding the fund until maturity bear only the risk of a default by the US government. Thus customers are to lock in the attractive premium and to get benefits from any potential reversion to lower, historical levels in the spread differential between asset-swapped TIPS and swap rates. 

Currently, in spite of credit risks, TIPS are worth between 100 - 150 basis points over other US Treasuries on asset swap, while historically TIPS have yielded around 30 - 40 basis points more than US Treasuries on asset swap. So the head of European inflation research at Deutsche Bank says that if TIPS return to the historical level the mark to market profits on a TIPS ASW portfolio supposed to be significant.

In a word, the unique dividend-paying structure of the Platinum IV Enhanced US Treasury fund enables investors to monetize easily and conveniently dislocations between the cash and derivative US inflation markets. 

This innovative fund allows investors to capture the return of inflation market dislocation in a cost efficient and regulated way, as for the words of head of fund structuring at Deutsche Bank Manfred Schraepler.