Falling Foreign Currencies Fuel This ETF’s Rise

If 2014 is to be remembered for being, among other things in the exchange traded funds universe, the year of the currency hedged ETF, the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF).

The Deutsche X-trackers MSCI EAFE Hedged Equity ETF entered 2014 with about $313 million in assets under management, enough to prevent the ETF from being labeled as “too small,” but not enough to elevate the fund to the currency hedged pantheon occupied by euro- and yen-focused products. [Currency Hedging Working for This ETF]

DBEF is shedding its overlooked status and can now make to being one of the most popular currency hedged ETFs on the market today and perhaps the most of related funds that are not dedicated euro or yen plays. Year-to-date inflows of $757 million confirm as much. Said another way, DBEF has not just doubled in size this year, its AUM total has more than tripled as investors have rushed to exploit a strong dollar and tumbling developed market currencies while maintaining equity exposure. [These ETFs Have Doubled in Size in 2014]

DBEF is a prime example of both a right place, right time ETF and a case study in the advantages of currency hedging, advantages that are often ignored by advisors and investors. DBEF is the currency hedged equivalent of a standard EAFE index fund and the currency hedged advantage has been on full display this year. DBEF is up almost 4%, which does not sound like much until measuring that performance against the 5% loss for the MSCI EAFE Index.

Consider this prime example of the inflated benefits of the previously weak U.S. dollar: From 2000 through 2013, the MSCI EAFE Index gained 45%, but when stripping out the effect of the weak dollar, the index was essentially flat said Luke Oliver, Head of Capital Markets for Passive Investments at Deutsche Asset & Wealth Management, in an interview with ETF Trends in September. [These are the Days for Currency Hedged ETFs]