The launch of a new Germany ETF will also be the shutdown of a hedged Canada fund.
Deutsche Bank is rolling out its db X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) on May 31, but the launch is really a matter of an existing fund, the db-X MSCI Canada Hedged Equity Fund (NYSEArca: DBCN), shedding its existing name, index and ticker and gaining a new ticker, a new index and a new name.
In other words, the debut of the hedged Germany strategy will also mark the end of the hedged Canada fund DBCN, which has gathered just $4.3 million since its launch almost two years ago. It appears to be a fund closure without calling it one, though technically, it isn’t a shutdown, because the fund’s CUSIP, “233051408,” won’t change.
The nuance behind the rollout of the Germany fund speaks to the vagaries of currency-hedged investing using ETFs. Many investors have tuned into the virtues of owning a yen-hedged ETF at a time when Japan’s central bank is focused on weakening the currency, but other currency-hedged strategies, such as the Canada-focused DBCN, have withered on the vine.
The most successful ETF this year in terms of inflows is the blockbuster WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), which, almost unbelievably, has become a $10 billion fund by dint of inflows totaling $7.58 billion and a rise in Japanese equities.
Deutsche Bank’s own db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP) has become a $100 million fund for the same reasons DXJ has taken off.
The Case For DBGR
Additionally, and for different reasons, Deutsche’s db X-trackers MSCI EAFE Hedged Equity Fund (NYSEArca: DBEF) has begun to gather assets over the past few months, as investors protect themselves against the possibility of further dollar strength against the euro. It is now a $76.9 million ETF.
Against that backdrop of possible euro weakness, DBGR is thus coming to market next Friday.
In the best of all possible worlds, Germany’s export-heavy economy of high-end industrial goods such as cars and heavy machinery should be uniquely situated to benefit from any euro weakness.
DBGR will track the MSCI Germany US Dollar Hedged Index, which comprises large- and midcap companies representing together about 85 percent of Germany’s equities universe. The portfolio includes 51 names. It’s the same index as the nearly $3 billion iShares MSCI Germany Index Fund (NYSEArca: EWG), only DBGR takes euro exposure off the table.
It remains to be seen whether the dollar remains strong against the euro, particularly because the European Central Bank seems uninterested in pursuing the ultra-easy monetary policies of the Bank of Japan.
The Forgotten Funds
It seems all but assured that the new DBGR will gather more than the $4.3 million its predecessor Canada-focused fund DBCN has.
That said, two other currency-hedged funds that have yet to gather significant assets stand as examples of investor selectiveness regarding strategies that aim to protect them from dollar strength. Investors, after all, have benefited quite a lot from the dollar weakness that has prevailed since the tech bust in 2000. It seems old habits, and maybe old trends, die hard.
Those two funds, and their still relatively small assets under management, are as follows:
- db X-trackers MSCI Brazil Hedged Equity Fund (NYSEArca: DBBR), $7.9 million
- db X-trackers MSCI Emerging Markets Hedged Equity Fund (NYSEArca: DBEM), $8.81 million