ETF Spotlight: DB’s Currency-Hedged U.K. ETF
November 1st at 2:56pm by Tom Lydon
ETF Spotlight on the db X-trackers MSCI United Kingdom Hedged Equity Fund (NYSEArca: DBUK), part of an ongoing series.
Assets: $5.2 million
Objective: The db X-trackers MSCI United Kingdom Hedged Equity Fund tries to reflect the performance of the MSCI United Kingdom US Dolar Hedged Index, which provides exposure to the U.K. equity market but mitigates the effects of currency fluctuations between the U.S. dollar and British pound sterling.
Holdings: Top holdings include HSBC (NYSE: HBC) 7.3%, Vodafone (NYSE: VOD) 6.3%, BP (NYSE: BP) 5.3%, GlaxoSmithKline (NYSE: GSK) 4.7% and Royal Dutch Shell (NYSE: RDS-A) 4.5%.
What You Should Know:
- Deutsche Bank sponsors the fund.
- DBUK has a 0.45% expense ratio.
- The fund has 108 components, and the top ten holdings make up 42.6% of the overall portfolio.
- Sector allocations include: consumer staples 27.0%, financials 21.7%, energy 16.4%, telecom services 10.9%, materials 8.6%, consumer discretionary 5.8%, industrials 4.7%, utilities 4.0% and information technology 1.0%.
- DBUK began trading Oct 1, 2013.
- The ETF is up 5.5% since it debuted.
- In comparison, the iShares MSCI United Kingdom ETF (NYSEArca: EWU), which does not hedge its currency exposure, is up 3.8% over the same period. [A Spot of Tea With U.K. ETFs]
- DBUK hedges its currency exposure by shorting the British pound, or GBP and going long the U.S. dollar, or USD.
- An appreciating foreign currency will augment returns of assets from the foreign country as the investment is converted back into U.S. dollars.
- A currency hedged-equity ETF will typically outperform a non-currency hedged-equity ETF if the foreign countries’ domestic currency depreciates against the U.S. dollar.
- However, the currency hedged-equity ETF could underperform a non-hedged ETF if the foreign domestic currency begins to appreciate against the USD.
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