Deutsche Launches Hedged Germany ETF

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Deutsche Bank today launched the db X-trackers MSCI Germany Hedged Equity Fund (NYSEArca:DBGR), the market's first currency-hedged take on German equities, serving up access to German-listed stocks while neutralizing exposure to currency fluctuations between the euro and the dollar.

The firm beat WisdomTree to the punch, which has a similar strategy-the WisdomTree Germany Hedged Equity Fund-still sitting in the regulatory pipeline.

Deutsche Bank and WisdomTree have competed in the realm of currency-hedged equities ETFs before, most notably with their respective Japan-focused strategies, but Deutsche might be hoping that a first-to-market status will help with its asset-gathering goals, if the experience it has had with its Japan-hedged equity fund "DBJP" is any indication.

Indeed, DBJP has outperformed its WisdomTree counterpart, the now-$10 billion WisdomTree Japan Hedged Equity Fund (NYSEArca:DXJ) year-to-date, but DBJP remains a far cry from DXJ's blockbuster success in terms of total assets. Still, DBJP is now a $100 million fund, built on net creations of $110 million so far this year.

DBGR also marks the end of the db-X MSCI Canada Hedged Equity Fund (NYSEArca:DBCN), as Deutsche is essentially retrofitting that $4 million fund with a new name, new index and new ticker, keeping only its CUSIP the same. The Germany-focused version of the fund will come with an annual expense ratio of 0.50 percent, or $50 for each $10,000 invested-the same price as DBCN.

The launch could come at a good time for Germany-listed equities, which struggled earlier this year to shake off the eurozone debt malaise that has been centered on countries like Greece, Spain and Italy. Those economies have recently turned around, and throughout the three-year crisis, Germany has remained the leading economy in the region-a safe haven of sorts in the eurozone storm.

DBGR will join the unhedged iShares MSCI Germany Index Fund (NYSEArca:EWG)-also linked to an MSCI index-that has been around since 1996, and has accumulated nearly $3 billion in total assets.

EWG has tallied gains of 7.3 percent year-to-date, with much of those gains coming in the past month. What's more, the performance has come despite net outflows of $1.18 billion since the beginning of the year, according to IndexUniverse's ETF Flows Tool.

Peeling off the currency exposure from a portfolio of German equities, however, would not amount to significant gains for U.S. investors right now.

Unlike exposure to the Japanese yen, for instance, the 12-month rolling impact of the euro versus dollar rate adds an extra 4.4 percentage points to U.S. investor returns at the moment, according to IndexUniverse's Currency Impact tool.

Still, the concept behind the ETF is that currency fluctuation can be detrimental to U.S. investors-mainly when the U.S. dollar rises in value-and DBGR addresses that.

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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: DXJ , EWG

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