Observers looking for growth within the exchange traded funds industry need not look any further than currency hedged ETFs.
Currency-hedged ETF assets grew 48 percent in 2014 to roughly $20.8 billion, and have grown 1,519 percent over the past two years, according to Deutsche Bank (NYSE: DB), Reuters reports. That number has grown in significant fashion in 2014 and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF) is a big reason why.
As has been the case with some other currency hedged ETFs, DBEF’s asset growth has been exponential, but in the case of DBEF, “jaw-dropping” is an accurate descriptor for the fund’s assert-gathering acumen. With 2015 inflows of $2.13 billion (as of Feb. 17), DBEF has nearly doubled in size just this year to over $4.6 billion.
Only one other currency hedged ETF and just six ETFs overall have added more new assets this year than DBEF. [Behind Deutsche’s ETF Ascent]
Given its current asset-gathering pace, DBEF will double in size this year, marking the second consecutive year the ETF has done so. To be more precise, DBEF has more than tripled in size since mid-December. In mid-October, DBEF had just over $800 million in assets under management. [ETFs That Have Doubled in Size]
More importantly, DBEF is worthy of that asset growth. At a time when developed market central banks, excluding the Federal Reserve, are committing to rampant quantitative easing, lowering interest or even going to negative interest rates, DBEF is shining. The ETF is up 7.6% year-to-date, nearly 200 basis points ahead of the unhedged MSCI EAFE Index.
DBEF’s constituents can hail from 21 countries, including the following: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.
Among the ETF’s largest country allocations is a combined 12.6% weight to Switzerland and Sweden, two countries with negative rates. France, Germany, the Netherlands and Spain combine for about 26% of DBEF’s weight, giving the ETF ample leverage to the weakening euro.
Japan, nearly 23% of DBEF’s weight, is unlikely alter its QE and low rate policies anytime soon and recent Bank of England meeting minutes reveal a central bank with little desire to rush to higher rates. British stocks account for 18.6% of DBEF’s weight.
The ETF could get some help from the Reserve Bank of Australia later this year. Earlier this month, RBA lowered Australia’s benchmark interest rate by 25 basis points to a record low of 2.25%. RBA’s benchmark cash rate was 4.75% in October 2011. The central bank unveiled 25-basis point cuts at two consecutive meetings later that year. From November 2011 to August 2013, on its way to the 2.5% interest rate, RBA cut rates at eight of 20 meetings. Australian stocks are 7.4% of DBEF’s weight.
Deutsche X-trackers MSCI EAFE Hedged Equity ETF
