Deutsche Bank, the pioneer in currency-hedged equities investing, today is launching three more currency-hedged strategies using riffs on MSCI indexes that are focused on Asia excluding Japan, Europe and the United Kingdom.
Two of the three planned funds, the Europe-focused strategy and the U.K.-focused strategy, seem squarely aimed at strategies that have already been brought to market by WisdomTree Investments, Deutsche Bank’s arch rival in the currency-hedged ETF space.
The three new proposed Deutsche Bank ETFs, their respective strategies, tickers and expense ratios are as follows, according to a Deutsche Bank executive:
- db X-trackers MSCI AC Asia Pacific ex Japan Hedged Equity Fund (DBAP), which will protect investors from a number of currency crosses with the dollar related to investing in developed as well as emerging market countries including Australia, China, Hong Kong, India, Indonesia, Malaysia, New Zealand, Singapore, South Korea, the Philippines, Taiwan and Thailand. It comes with an expense ratio of 0.60 percent, or $60 for each $10,000 invested
- db X-trackers MSCI Europe Hedged Equity Fund (DBEU), which will protect investors from a number of currency crosses with the dollar related to investing in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. It will cost 45 basis points.
- db X-trackers MSCI United Kingdom Hedged Equity Fund (DBUK), which will take fluctuations between the dollar and the British pound sterling off the table. It, too, will cost 45 basis points.
Any offering in the currency-hedged space can’t be properly contextualized without first considering the wild success of the WisdomTree Japan Hedged Equity Fund (DXJ | B-45).
DXJ’s huge success in the past several months—$11.2 billion in assets and total 2013 inflows of $8.85 billion—has made it the most popular U.S.-listed ETF this year, and has brought the potential virtues of currency-hedged investing into sharp focus.
DXJ has returned almost 30 percent this year, with its currency hedge preserving half of those returns to the extent that the yen’s nearly 12 percent slide again the dollar isn’t part of DXJ’s performance.
Situating The Three New Funds
The Asia-Pacific strategy may well end up being the most promising of the three new funds to the extent that it is alone competitively and that Asia in general may well be one area of the investment universe where U.S. investors could really use currency hedging, as IndexUniverse ETF Analyst Paul Baiocchi argued in a recent blog.
As noted, two of the three ETFs Deutsche is launching on Tuesday—the Europe fund and the U.K. fund—look a lot like two funds that WisdomTree has already has on the market.
Deutsche Bank’s ace in the hole going forward is its use of MSCI indexes, which means large institutional players looking to hedge currency exposure can do so with tighter controls to the extent that they frequently benchmark their performance to MSCI indexes.
Some of Deutsche’s strategies have also benefited from the DXJ-related craze.
For example, the db X-trackers MSCI Japan Hedged Equity Fund (DBJP | B-54) now has $172.5 million in assets—a fraction of DXJ’s $11 billion-plus, but a lot more than it had at the time DXJ’s asset-gathering went “parabolic” late in 2012.
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