Daily ETF Watch: DB Plans Dual Japan Funds

Deutsche Bank has made a pair of filings over the past few months indicating the firm is looking to offer investors hedged and unhedged versions of the same exposure in Japan.

In December, the ETF provider filed for the Deutsche X-trackers Japan Equity ETF. More recently, the firm filed for the Deutsche X-trackers Japan Hedged Equity ETF.

Deutsche Bank already markets the Deutsche X-trackers MSCI Japan Hedged Equity ETF (DBJP | B-65), which tracks an MSCI index that hedges away the impact of fluctuations in the yen against the U.S. dollar. DBJP has roughly $717 million in assets under management.

The two latest filings are tied to what appears to be the same unnamed smart-beta index, which covers stocks listed on the Jasdaq Stock Exchange and Tokyo Stock Exchange that are selected based on their combined scores in the areas of return on equity, cumulative operating profit and current market value, according to the prospectuses.  The Jasdaq, as the rhyme with Nasdaq might suggest, is a tech-heavy slice of Japan’s tech universe.

It looks like Deutsche Bank is attempting to merge the approaches of WisdomTree and iShares. WisdomTree was a pioneer in the currency-hedged space when, in 2010, it revamped what is now the WisdomTree Japan Hedged Equity ETF (DXJ | B-56) to include the currency hedge. The fund is also dividend-weighted and screens for companies that have an export-oriented focus, putting it firmly in the “smart beta” space. DXJ is a behemoth, weighing in with assets under management of more than $13 billion.

Competing Takes On Hedging

iShares offers investors a slightly different option – it does provides both a currency-hedged and an unhedged version of its Japan ETF. The iShares Currency Hedged MSCI Japan ETF (HEWJ | D-38) actually owns shares of the iShares MSCI Japan ETF (EWJ | B-97) and applies an overlay of forward currency contracts as a hedge. EWJ, the unhedged version, already has nearly $14 billion in assets, while HEWJ has nearly $233 million. The latter fund gained instant liquidity because it was composed of the existing well-established fund.

Both iShares funds carry an expense ratio of 0.48 percent, so opting for the hedged version doesn’t cost an investor anything extra, except maybe at tax time, as the underlying exposure is taxed differently than the currency overlay.  

Presumably, these latest filings indicate that Deutsche Bank is looking to offer the “smart beta” option provided by the WisdomTree Fund, which is by far the biggest of the currency-hedged Japan funds, while offering investors the chance to maintain their exposure to the same selection of stocks whether or not the investment environment calls for a currency hedge.

Neither of the filings included a ticker or expense ratio.