A strong management team and sound investment process underpin Xtrackers High Beta High Yield Bond ETF's Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy’s management team earns an Above Average People Pillar rating. The strategy's sensible investment philosophy earns an Above Average Process Pillar rating.  The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

Morningstar's evaluation of this fund's process seeks to determine how repeatable, consistent, and reliable it is, and whether management maintains a competitive advantage. Xtrackers High Beta High Yield Bond ETF earns an Above Average Process Pillar rating.    The main driver of the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The parent firm's five-year risk-adjusted success ratio of 58% also influences the rating. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their commendable success ratio suggests that the firm does well for investors and that this fund may benefit from that. Lastly, the process is limited by the instability of talent across its parent firm. The firm's asset-weighted manager tenure of six years suggests it could do more to retain portfolio managers.

 Compared with other funds in the High Yield Bond Morningstar Category, this fund consistently holds a significantly smaller cash position over the past few years. But in terms of long-term interest-rate sensitivity, it does not have a portfolio bias and hews closely to peers. 

 This strategy's 12-month yield is 7.5%, higher than its average peer's 6.4%. Higher yields tend to indicate higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated B.

Above Average

Process

Xtrackers’s team is strong compared with others in the industry, resulting in an Above Average People Pillar rating. There are four managers listed on the fund: Bryan Richards, Deepak Yadav, Ronald Leung, Benjamin Spalding. The team is inadequately equipped. Together, they average four years of portfolio management experience. Together, they manage a total of 11 strategies, with a Silver asset-weighted average Morningstar Medalist Rating, demonstrating their potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

In the past two years, DWS has been under heavy scrutiny from the SEC and German authorities owing to greenwashing allegations that were initially raised in August 2021 by the firm’s former chief sustainability officer Desiree Fixler. The SEC announced on Sept. 25, 2023, that it has fined DWS USD 19 million for failing to implement procedures to ensure that all investment staff members were following its environmental, social, and governance policies. This relates to funds where ESG factors were analyzed alongside other financially material factors, but where managers retained discretion over ESG outcomes. In addition, the firm was ordered to pay USD 6 million for deficiencies in its anti-money-laundering processes that were uncovered in a separate investigation. The investigation by the German authorities into the firm's ESG disclosures is still ongoing.  
The SEC findings underline that despite strong senior management commitment, it takes a considerable amount of time and resources to embed sustainability across all levels of an organization for firms without a long-standing sustainability heritage. Overconfidence and failure to deal with internal criticism adequately appear to have contributed to DWS' misleading statements on ESG matters. While it's difficult to quantify the financial damage to clients and no misstatements were detected in financial disclosures or prospectuses, we believe the firm’s shortcomings have the potential to adversely affect investor outcomes. Hence, we welcome DWS' efforts to strengthen governance around ESG integration and communicate more conservatively about its ESG capabilities.
Questionable and unsteady leadership has contributed to the DWS' woes. Previous CEO Asoka Woehrmann, who had spearheaded the firm's ESG push, stepped down in June 2022 as a result of the ESG investigations. His credibility had already been harmed following his use of personal email for business purposes and a large payment made to him by a client when he was head of Deutsche Bank's private-client business before being appointed as DWS' CEO in 2018. His successor Stefan Hoops is the firm's sixth CEO in the past 10 years, highlighting the instability in the firm's top leadership. This appointment also shows the continued influence of its parent company, even after the partial IPO in 2018. Hoops has spent most of his career at Deutsche Bank but has no asset-management background.
Despite all these negative headlines and shaky leadership, DWS has managed to remain quite stable in its investment ranks. The firm has also made strides to gain greater independence. For example, since 2020, bonuses have been linked to the firm's own performance rather than to that of the bank as a whole, which supports alignment and talent retention. Variable remuneration takes into account performance of up to five years.
DWS' vast fund lineup covers all asset classes, including passive strategies, which are offered under the Xtrackers brand. Many offerings don't distinguish themselves, but there are genuine areas of strength among active strategies, and fees are competitive across many funds. While the product development process has been streamlined, and although the firm has launched new strategies at a slower pace, lineup turnover remains a concern as a culture of asset-gathering prevails. New offerings are partly related to an expansion of ESG capabilities, but the firm is also building out its thematic equity, multi-asset, alternatives, and exchange-traded fund range. 
At this stage, we continue to believe that DWS' strengths justify a Parent Pillar rating of Average despite several weaknesses in its stewardship practices, but we will closely monitor the company for further disruption.

Average

Parent

Xtrackers High Beta High Yield Bond ETF

HYUP tracks an index of USD-denominated high yield bonds with a high yield to worst.

Xtrackers MSCI All World ex US High Dividend Yield Equity ETF

Xt EAFE Div Yld Shs

Xtrackers Low Beta High Yield Bond ETF

Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF

Xtrackers USD High Yield Corporate Bond ETF

Xtrackers Municipal Infrastructure Revenue Bond ETF

Xtrackers Short Duration High Yield Bond ETF

International high dividend exchange traded fund strategies can potentially help investors diversify and generate steady yields. In the recent webcast, Rates Rising?

Global Dividend ETF Strategies Could Help Investors Diversify, Generate Attractive Yields

As headwinds at home grow stiffer, investors are starting to turn to overseas markets to source income. On average, international high-dividend stocks have posted higher yields than U.S.-based ones every year since 1999.

Rates Rising? Time To Go Global With Your High Dividend Strategy

A reader and subscriber asked for my thoughts on HYUP. HYUP is a high-yield corporate bond fund, with relatively risky holdings, and a 5.0% forward dividend yield.

HYUP: High-Yield Corporate Bond ETF, 5.0% Forward Yield

A high yield, high beta exchange-traded fund (ETF) strategy might seem expensive at first glance, but at a 0.20% expense ratio, investors can get access to this fixed income alternative via the High Beta High Yield Bond ETF (HYUP). HYUP seeks investment results that correspond generally to the performance, before fees and expenses, of the [.

Get High Beta and High Yield in This Low-Cost ETF

As the Federal Reserve enacts aggressive monetary policies to stabilize the economy, fixed-income investors are faced with a lower-for-longer yield environment. In the upcoming webcast, High Yield: Strategies for Volatile Markets, Marc Pfeffer, Chief Investment Officer, CLS Investments; Stephen Blumenthal, Executive Chairman and Chief Investment Officer, CMG Capital Management Group; Sonja Hildebrandt, Vice President | [.

News for Xtrackers High Beta High Yield Bond ETF ETF (HYUP)