iShares To Take On DB Currency ETFs, DXJ

September 12, 2013

The world’s biggest ETF firm plans a decisive foray into currency-hedged funds.

iShares, the world’s biggest ETF firm, filed paperwork this week to bring to market three MSCI-indexed currency-hedged equities funds targeting Japan, EAFE countries and Germany, bringing it into direct competition with an identical lineup of existing products sponsored by Deutsche Bank.

iShares’ proposed Japan-focused fund will also bring San Francisco-based iShares into competition with WisdomTree’s blockbuster Japan ETF, ‘DXJ,’ which remains this year’s most popular U.S.-listed exchange-traded fund.

The three planned ETFs, and links to their respective prospectuses are as follows:

Currency-hedged ETFs have become all the rage in about the past year, as investors, for the first time since the tech bust, have a strengthening dollar—or a weakening yen or euro—to consider. Owning a fund like the blockbuster WisdomTree Japan Hedged Equity Fund (DXJ | A-45) means that returns won’t be hurt by a yen that has weakened by about 13 percent this year. So, if and when investors sell their yen-denominated position, they won’t face the consequences of transferring their holdings into dollars that have become pricier relative to the yen.

DXJ, as noted, is the most popular U.S.-listed ETF this year. It hauled in almost $8.5 billion in fresh assets in 2012, and is now a $10 billion fund, according to data compiled by IndexUniverse.

The Deutsche Bank ETFs

The proposed iShares trio of currency-hedged funds will compete directly with three funds marketed by Deutsche Bank, which was the first to flood the currency-hedged space with new products a bit more than two years ago.

Those Deutsche Bank funds, their inflows this year and their assets under management, are as follows:

  • db X-trackers MSCI Japan Hedged Equity (DBJP | C-54), $151 million in creations this year, total assets of $160 million
  • db X-trackers MSCI EAFE Hedged Equity (DBEF | C-49), $129 million in creations this year, total assets of $148 million
  • db X-trackers MSCI Germany Hedged Equity Fund (DBGR | N/A), $2.2 million in creations this year, total assets of $6.8 million

The fact that iShares chose MSCI indexes is hardly a surprise, as the ETF unit of BlackRock has a reputation for offering a broad array of funds using MSCI indexes that are often favored by institutional investors.

The currency-hedged funds offered by Deutsche and proposed by iShares are basically the same as three big and highly liquid iShares ETFs, save for the currency piece. This similarity, of course, makes it simpler to manage benchmarking needs for investors who want to tweak currency exposure—a factor that augurs well for both Deutsche’s and iShares’ prospects versus DXJ and other WisdomTree products.

Those three existing iShares funds that have no currency hedging component and their assets are as follows:

  • iShares MSCI Japan ETF (EWJ | B-94), with total assets of $11.2 billion
  • iShares MSCI EAFE ETF (EFA | A-89), with total assets of $44 billion
  • iShares MSCI Germany ETF (EWG | A-96), with total assets of $4.88 billion



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