With such high levels of volatility in emerging markets, and an
increasingly strong U.S. dollar, hedged ETF investing has
definitely come into vogue as of late. And this trend could
definitely remain in place if the current rocky environment that
investors are seeing in the emerging market world continues as we
head further into the year.
After all, when the dollar is strengthening, a hedged investment
can outperform an unhedged one, making currency-hedged picks good
ideas for investors who believe in either weak foreign currencies
or a strong dollar (see
the Key to International ETF Investing
While there are still relatively few options out there that give
investors access to currency-hedged markets, Deutsche Bank just
launched a few more funds in this segment that look to round out
the offering for investors.
For investors intrigued by this approach to investing in foreign
markets, we have highlighted some of the key details from these new
products-and their competitors-- below:
db X-trackers MSCI Mexico Hedged Equity Fund: DBMX
This product follows the MSCI Mexico IMI 25/50 US Dollar Hedged
Index. This benchmark looks to provide access to Mexican equities,
while at the same time mitigating the impact of the changes in
value of the peso against the dollar. The product costs a pretty
low 50 basis points a year in fees, putting it in line with its
unhedged counterpart (read
Best ETF Strategies for 2014
In terms of the portfolio, America Movil dominates at nearly 20% of
the total, though it should be noted that the fund holds about 50
securities for its basket. In terms of sectors, consumer staples
take the top spot at just over 22%, though telecom and financials
both receive over 18% as well.
: There isn't much in terms of other Mexican ETFs, though the
iShares MSCI Mexico Investable Market Index Fund (
is quite popular. This product has over $2.5 billion in assets and
average daily volume in the millions, so it will be hard to unseat
this fund from its top perch.
db X-trackers MSCI South Korea Hedged Equity Fund:
This new fund looks to track the MSCI Korea 25/50 US Dollar Hedged
Index. This benchmark provides exposure to South Korean equities,
while also mitigating the influence of the South Korean won's
movements against the dollar. The fund costs 58 basis points a
year, making it slightly cheaper than the 'regular' South Korean
ETF on the market.
The fund's portfolio consists of about 100 stocks in total, and is
dominated by Samsung Electronics which accounts for roughly
one-fifth of the fund's assets. For sectors, technology takes the
top spot at just over 31%, followed by consumer discretionary
(18.3%), and financials (15.2%).
Easily the most popular is the
iShares MSCI South Korea Index Fund (
which has over $4 billion in assets, and average daily volume of
over 2.7 million shares. However, there is also a hedged name in
this space, the
WisdomTree Korea Hedged Equity Fund (
, so this could be a crowded market for Deutsche Bank (see
Inside the New Hedged Korea ETF
db X-trackers MSCI All World ex US Hedged Equity Fund:
For more of a global play, consider this fund which follows the
MSCI ACWI ex USA US Dollar Hedged Index. This benchmark gives broad
exposure to dozens of nations across the emerging market and
developed world, while simultaneously eliminating some of the
currency risks from these nations.
The fund is a cheap choice, charging just 40 basis points a year,
while the index contains more than 1,800 constituents. Exposure is
tilted towards financials (26.8%), while industrials and consumer
discretionary each receive more than 10% as well. Nationally, the
fund is focused on Europe but others receive a large role with the
top five nations being the UK, Japan, France, Canada, and Germany.
There is an
iShares MSCI ACWI ex US Index Fund (
which looks to be a fierce competitor for DBAW. Not only is this
unhedged fund cheaper at 34 basis points a year, but it has more
than $1.5 billion in assets, and volume exceeding half a million
shares a day (See
all the World ETFs here
Currency hedging generally costs a bit more than 'regular' funds,
but if local currencies are sliding, it can be well worth it for
investors. When currencies are falling against the dollar, hedged
products can easily outperform, and we have seen this in the
Japanese market over the past 18 months.
However, in markets of stable or rising currency prices, hedged
products may underperform their more traditional counterparts,
while bid ask spreads may also create higher trading costs, at
least in the beginning if investors do not pile into these funds.
Due to these factors, these ETFs may be solid options for some, but
you should definitely have a strong opinion on the underlying
currencies involved before participating in these products.
If we do see a strong dollar though, these funds seem likely to
outperform, though only time will tell if investors embrace these
currency hedged products, or if they just stick to hedged products
tracking nations that are experiencing big currency moves, like
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ISHRS-MSCI ACWX (ACWX): ETF Research Reports
WISDMTR-KR HE (DXKW): ETF Research Reports
ISHARS-MEXICO (EWW): ETF Research Reports
ISHARS-S KOREA (EWY): ETF Research Reports
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