Deutsche Tweaks Currency-Hedged ETFs

February 11, 2011

Deutsche Bank updated papers it originally filed with U.S. regulators in the fall to reflect new tickers and planned fees for five passive international equity ETFs from developed and developing countries alike that share a currency-hedging feature aimed at stabilizing returns.

In the new filing, the company also provided additional detail regarding the composition of the family of MSCI FX Hedge indices that will serve as benchmarks to the various funds.

The derivative-based strategy behind the ETFs is to isolate returns of the underlying equities, while eliminating as much as possible the impact of currency fluctuations on those returns, the filing said. The hedging mechanism designed to offset the exposure to local currencies is achieved through the use of forward currency contracts.

While Deutsche Bank is not a pioneer in the space -- WisdomTree has at least two comparable funds including the WisdomTree International Hedged Equity (NYSEArca: HEDJ) -- the strategy adds a new wrinkle to what has often been a case of either avoiding emerging market currency risks by choosing dollar-denominated funds or investing in ETFs in foreign currencies to benefit from the weakening dollar.

Deutsche Bank’s move comes at a time of heightened uncertainty in the global economy. Central banks of developed economies are all engaged in, or prepared to launch, unprecedented monetary policy experiments aimed at controlling deflationary pressures to reverse the deepest downturn since the 1930s.

The respective tickers, fees and holdings of Deutsche’s five ETFs are:

  • DBX MSCI Emerging Markets Currency-Hedged Equity Fund (NYSEArca: DBEM), 0.65 percent. DBEM will invests in some 800 securities in 21 emerging economies that include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. Holdings have an average market capitalization of $4.9 billion.

 

  • DBX MSCI EAFE Currency-Hedged Equity Fund (NYSEArca: DBEF), 0.35 percent. DBEF will tap into 22 developed nations excluding the U.S. in a portfolio that has almost 1,000 holdings with an average market capitalization of $11.43 billion.

 

  • DBX MSCI Brazil Currency-Hedged Equity Fund (NYSEArca: DBBR), 0.60 percent. DBBR’s portfolio comprises some 81 securities with an average market capitalization of $7.66 billion.

 

  • DBX MSCI Canada Currency-Hedged Equity Fund (NYSEArca: DBCN), 0.50 percent. DBCN includes 100 holdings with an average market capitalization of $13 billion.

 

  • DBX MSCI Japan Currency-Hedged Equity Fund (NYSEArca: DBJP), 0.50 percent. DBJP’s portfolio will consist of some 340 securities with an average market capitalization of $7.2 billion.

 

DBX Advisors will serve as advisor to the funds.

 

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