Expanding on its suite of hedged-equity offerings, Deutsche Asset & Wealth Management has filed with the Securities and Exchange Commission to launch an Italy exchange traded fund that helps mitigate the negative effects of currency risk.
According to a recent SEC filing, Deutsche is working on the db X-trackers MSCI Italy Hedged Equity Fund. No ticker was provided.
The Italy Hedged Equity Fund will try to reflect the performance of the MSCI Italy 25/50 US Dollar Hedged Index, which is designed to provide exposure to Italian equities while mitigating the fluctuation between the value of the USD and the euro currency. The benchmark index will sell euro currency forwards at the one-month rate to hedge against currency risk.
Compared to traditional foreign equity ETFs that do not hedge against currency fluctuations, a depreciating foreign currency or strengthening U.S. dollar would weigh on returns in foreign currency-denominated securities. When converting foreign currency-denominated returns back into the greenback, a weaker currency translates to a smaller U.S.-dollar return.
However, potential investors should be aware that the fund can underperform other similar non-hedged funds if the euro currency appreciates.
“Such transactions reduce or preclude the opportunity for gain if the value of the currency should move in the direction opposite to the position taken,” according to the exemptive relief filing.
The fund will hold at least 80% of its assets in Italian equities. The underlying index is also heavily tilted toward the financial services sector.
Deutsche Asset & Wealth Management offers a line of hedged-equity ETFs. For instance, thedb X-Trackers MSCI Europe Hedged Equity Fund (NYSEArca: DBEU) follows European markets and the db X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) targets German equities. Both funds hedges against a depreciating euro currency. These Europe hedged-equity ETFs are attracting greater interest on growing speculation that the European Central Bank will implement additional monetary easing. [ECB Speculation Drives Euro ETF to Three-Month Low]
For more information on new fund products, visit our new ETFs category.