Deutsche Bank, the pioneer in currency-hedged equities investing, filed regulatory paperwork this week putting into registration three more currency-hedged strategies using riffs on MSCI indexes that are focused on Asia excluding Japan, Europe and the United Kingdom.
The three new proposed Deutsche Bank ETFs and their respective strategies are as follows:
- db X-trackers MSCI Asia Pacific ex Japan Hedged Equity Fund , 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
- db X-trackers MSCI Europe Hedged Equity Fund , 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
- db X-trackers MSCI United Kingdom Hedged Equity Fund , which will take fluctuations between the dollar and the British pound sterling off the table
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. WisdomTree, of course, is the sponsor behind the $9.42 billion WisdomTree Japan Hedged Equity Fund (DXJ).
DXJ’s huge success in the past several months 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 more than 24 percent this year, with its currency hedge preserving half of those returns to the extent that the yen’s nearly 13 percent slide again the dollar isn’t part of DXJ’s performance.
An Ill-Advised Marketing Bonanza?
The sliding yen is, however, a distinct story involving concerted efforts by Japanese policymakers, and it’s not at all clear whether other strategies on the market or in registration will be successful.
What is clear is that a lot of marketing energy is now going into the currency-hedged space.
As noted, two of the three ETFs Deutsche put into registration this week—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 DXY-related craze. For example, the db X-trackers MSCI Japan Hedged Equity Fund (DBJP) now has $116 million in assets—a fraction of DXJ’s, but a lot more than it had at the time DXJ’s asset gathering went “parabolic.”
Deutsche didn’t include ticker symbols or proposed expense ratios for the three new funds, but did say it would have their primary listings on Arca, the New York Stock Exchange’s electronic trading platform.
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