With the CurrencyShares Euro Currency Trust (NYSEArca: FXE) down over 10% this year, speculation running rampant that the European Central Bank will soon announce Federal Reserve-style bond-buying and chatter among market participants that European stocks are rebound plays for 2015, a perfect storm of shorting the euro while maintaining long exposure to Eurozone equities could be emerging.
Issuers of exchange traded funds appear to agree as highlighted by Thursday’s debut of the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ). The new ETF is the 12th currency hedged fund launched in the U.S. by Deutsche Asset & Wealth Management (DAWM), the ETF issuing arm of German banking giant Deutsche Bank (NYSE: DB).
DBEZ tracks the MSCI EMU IMI U.S. Dollar Hedged Index and like many dedicated Eurozone ETFs, the new fund is heavy on Germany and France, the region’s two largest economies. French and German stocks combine for 61% of DBEZ’s weight. Spain, the Eurozone’s fourth-largest economy, is the only other country to receive a double-digit weight in DBEZ at 12%, according DAWM data.
“Today’s launch reaffirms Deutsche Asset & Wealth Management’s commitment to providing innovative strategies that meet investors’ current and emerging portfolio needs,” said Fiona Bassett, Head of Deutsche AWM’s Passive Business in the Americas, in a statement. “We are excited to leverage our unique European market leadership and international expertise as we introduce Deutsche X-trackers MSCI EMU Hedged Equity ETF, our fourth currency hedged ETF for US investors into European equities.”
DBEZ will compete directly with the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ), one of this year’s top asset-gathering ETFs, and the iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU). However, DBEZ has an advantage over its established rivals. The new ETF charges just 0.45% per year compared to annual fees of 0.58% and 0.51% on HEDJ and HEZU. [Investors Love Euro Hedged ETFs]
As previously noted, DBEZ is DAWM’s 12th U.S.-listed currency hedged ETF and the firm has had considerable success with currency hedged products. When the Japanese yen plunged last year, the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) went from relatively unknown to a household name among Japan ETFs. DBJP is now a $666.6 million ETF.
With the U.S. dollar surging this year, the allure of currency hedged ETFs for ex-U.S. developed markets exposure has soared, benefiting ETFs such as the Deutsche X-Trackers MSCI Europe Hedged Equity ETF (NYSEArca: DBEU) and the Deutsche X-trackers MSCI EAFE Hedged Equity Fund (NYSEArca: DBEF).
Not only have DBEU and DBEF handily outperformed unhedged Europe and EAFE equivalents, the two are among the fastest-growing ETFs in the U.S. DBEF entered 2014 with about $313 million in assets under management. Today, the ETF has over $1.4 billion in assets under management. [Falling Foreign Currencies Lift This ETF]
DBEZ Sector Weights
Chart Courtesy: DAWM