Deutsche’s Kremenstein: Building The Brand

September 07, 2011

The future will include both PowerShares DB and db-X brands, Deutsche’s Kremenstein says.


Martin Kremenstein, the Chief Investment Officer at DB Commodity Services, is keen on making investors aware that Deutsche Bank aims to become a bigger player in the U.S. ETF market. Truth be told, Deutsche Bank is already among the top 10 players. But most of its assets are folded into those of Invesco PowerShares, which markets Deutsche products under the “PowerShares DB” brand.

Kremenstein isn’t taking sides when it comes to discussing how the recent U.S. rollout of Deutsche’s db-X ETF brand will affect the PowerShares DB product line. Instead, he told Managing Editor Olivier Ludwig he’s equally excited about both the new lineup of db-X currency-hedged equity funds and the new PowerShares DB ETNs that give investors access to single-country sovereign debt.


Ludwig: What does the db-X product line mean for your relationship with PowerShares? The last time I looked at the numbers, I think PowerShares had around $55 billion under management, and about a quarter of that is actually Deutsche Bank’s assets.

Kremenstein: We wanted to expand our product lineup. We’ve done well in the commodities, currencies and alternative spaces, but we wanted to break into a more mainstream marketplace. We decided to launch a securities-based platform, and at the same time thought that it would be a good opportunity to launch the db-X brand in North America. Given the strengths of the brand in Europe and its success there, we thought this would be a good opportunity to bring this to the U.S. market.

Ludwig: So, how is the U.S. db-X rollout going?

Kremenstein: It’s going well. We re-branded the TDX Independence funds to be the db-X Target Date funds. We’ve launched the five MSCI currency-hedged funds. We're getting a lot of interest in those from investors. [(NYSEArca: DBJP), (NYSEArca: DBBR), (NYSEArca: DBCN), (NYSEArca: DBEF), (NYSEArca: DBEM)].

It’s a complex story to get out there and tell people. Not a lot of investors were aware that they are running currency risk in their international equity portfolios. People have been buying international equities because of their outperformance over the U.S. market. If you look at the EAFE Index, all of its outperformance over the S&P 500 over the last 10 years has come from the currency component; that is, being short the U.S. dollar and long on foreign currencies.

It’s the same thing with Japan. In Canada, half of the outperformance over the S&P has come from the Canadian dollar strength over the U.S. dollar. Currency movements have also been a big contributor to the outperformance of Brazilian and emerging markets equities over domestic equities over the last 10 years.

If you look at dollar trends over the last 40 or 50 years, they’ve tended to move in six- to 10-year bands, the average being seven years at a time. We had a seven-year band from 2001 to 2008, when the dollar declined by 40 percent, and it’s been trading sideways ever since.

We brought these products to give investors an opportunity to manage the returns that they’re getting from the currency exposures, within their equity portfolio.


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