Deutsche Bank Launches 3 More Hedged Equity ETFs


Thanks to some efforts by Japan to weaken their currency, investors have begun to embrace hedged ETFs for international exposure. This has been a pretty solid strategy too, as hedged Japan funds have easily outperformed their unhedged cousins over the past year, with gains of more than 60% seen in some products compared to 30% gains in unhedged counterparts.

While this has been great news for ETFs like DXJ which has attracted the lion’s share of the assets, the real winner was in the db X-Trackers MSCI Japan Hedged Equity ETF (DBJP). This fund easily outperformed DXJ, and though it still lags in terms of assets, it has seen a surge in interest as well (see Time to Focus on Yen Hedged Japan ETFs?).

Thanks to this, Deutsche Bank is now looking to expand its lineup of funds (under the db X-Tracker brand), targeting other regions and nations with a currency-hedged approach. The company has put out three such products, and we have highlighted some of the key details about each below:

db X-Tracker MSCI United Kingdom Hedged Equity Fund (DBUK)

If investors want targeted exposure to the UK without the risks from a depreciating pound, DBUK could be a solid pick. The ETF tracks the MSCI United Kingdom US Dollar Hedged Index, charging investors 45 basis points a year in fees for the exposure.

The underlying index has about 100 stocks in its basket, and pays a solid yield of over 3.7%, suggesting it may be a solid choice for income too. In terms of sector and individual holdings, financials, energy and consumer staples all take up sizable allocations (at least 16.6%), while HSBC, Vodafone and BP take the top individual spots and all account for at least 5% of the total.

db X-Trackers MSCI Europe Hedged Equity Fund (DBEU)

For broad European exposure, DBEU is an interesting choice, charging investors 45 basis points a year. The product tracks the MSCI Europe US Dollar Hedged Index, tracking the return of stocks in 16 different European nations, without currency risks (see all the European Equity ETFs here).

Financials take the top spot at 21.3% of the portfolio, and are followed by consumer staples (14.2%), health care (12.7%), and industrials (11.5%). The index has over 440 constituents in its basket, and no single company makes up more than 3% of the total. Country exposure is heavily tilted to the UK (33.7%), while France, Switzerland, and Germany receive double digit allocations as well.

db X-Trackers MSCI AC Asia Pacific Hedged Equity Fund (DBAP)

This fund tracks the MSCI Asia Pacific ex-Japan US Dollar Hedged Index, charging investors 60 basis points a year in fees. The product is exposed to a number of countries from around the region, including Australia, China, South Korea, Taiwan, and Hong Kong just to name a few.

Top sector holdings include financials (37%), technology (14.5%), materials (9.3%), while no single security makes up more than 5% of assets. The fund also looks to be a bit of a yield destination, as the index dividend yield comes in at 3.05%.

How These Might Fit in a Portfolio

These ETFs are built for investors who believe that the dollar will strengthen, or at least that major European and Asian currencies will tumble against the greenback.  When this situation occurs, these ETFs will likely outperform their unhedged counterparts (read The Key to International ETF Investing).

Meanwhile, when foreign currencies are strengthening, these ETFs could lead to some underperformance for dollar-based investors, at least when compared to those that aren’t using hedging techniques. So, make sure you believe that the dollar will strengthen against the above countries’ currencies before taking a dip into any of these products.

Additionally, investors should note that the expense ratios are going to be a bit higher here, thanks to the more involved process of hedging. Volume levels may also be light initially, so bid ask spreads may be tight as well, though competition is likely to be minimal for investors seeking currency-hedged exposure.

Bottom Line

There aren’t a whole lot of direct competitors to these products, at least in terms of hedged foes. There are, however, a host of unhedged competitors out there in these markets (also see 4 Unbeatable ETF Strategies for Q4).

In particular DBUK could see some heavy competition from EWU, while DBEU may face competition from VGK and EZU, and DBAP could see some worries from AAXJ. And, all of these competitors have more than $1 billion in assets each, so they could definitely act as a wall for Deutsche Bank’s efforts at accumulating fresh assets.

However, should currencies in Europe and Asia face weakness against the dollar, these new products could outperform their more entrenched competitors. If this happens, we could see some solid inflows, though look for the initial build up—and volume levels—to be slow going at first in this increasingly popular corner of the exchange-traded fund world.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Read the analyst report on DBUKRead the analyst report on DBJPRead the analyst report on DBEURead the analyst report on DBAPRead the analyst report on EWURead the analyst report on AAXJRead the analyst report on VGKZacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report


View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Enjoy this refreshing Triple Play offer!

    Get FIOS TV Mundo starting at $79.99/mo. w/ no annual contract + 2-yr. price guarantee. Or sign for 2 yrs. & get a $300 prepaid Visa. Click here.

    AdChoicesVerizon FiOS ®Sponsored
  • Tycoon's arrest sends shock wave through Russia

    Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…

    Associated Press
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Costco Stores in Canada to Stop Taking American Express

    “The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…

  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • As Fed takes baby steps, Cramer's trick for profit

    In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…

  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • AT&T® Business Wireless

    New prices on our Mobile Share Value Plans on the nation's most reliable 4G LTE network.

    AdChoicesAT&T® Small BusinessSponsored
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Chase Credit Cards

    Choose from cards with travel rewards, cash back, low interest, and more. Learn More.
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Don't buy Alibaba stock: 'Dean of Valuation'

    Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…

  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

  • Play

    Tues., Sept. 16: Watch Humana Stock

    Humana, Global X Social Media Index ETF and Majesco Entertainment are among stocks to watch. WSJ's Chris Dieterich discusses the details with Michael Casey. Photo: Humana

    WSJ Live