Capture Upside while Preventing Downside with the DBEM ETF

A risk-on sentiment is permeating into the capital markets again. Investors can partake in riskier assets like emerging markets more safely with ETFs with a hedging component like the Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM).

DBEM seeks investment results that correspond generally to the performance of the MSCI EM US Dollar Hedged Index. The fund, using a “passive” or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the underlying index, which is designed to track emerging market performance while mitigating exposure to fluctuations between the value of the U.S. dollar and the currencies of the countries included in the underlying index.

DBEM will invest at least 80% of its total assets in component securities of the underlying index. The fund’s net expense ratio is 0.66% and is up over 21% within the past year.

DBEM Chart

Summer brought forth a nice retracement of the chart back to its pre-pandemic levels around August. The fund is currently up 9% above the 50-day moving average. Its momentum is strong with the relative strength index (RSI) showing that DBEM is well above overbought levels.

DBEM Chart

What’s In Store for Emerging Markets in 2021?

The prevailing sentiment in the markets right now is that global economies should recover as a Covid-19 vaccine continues to roll out. The hope is that economies will eventually move out of lockdown statuses and re-open their doors.

“The recovery will accelerate with the vaccine, but stop and go phases will persist. We expect further pressure on fiscal and monetary policy for more stimulus,” a Financial Times article by Pascal Blanqué, CIO of Amundi Asset Management, noted. “China and parts of Asia will lead the recovery, while the rest of the world will follow. With low rates and tight spreads, equities will be the place to go with the great rotation towards value set to continue. ”

However, investors will have to pick and choose their spots, according to Blanqué.

“Emerging market equities are our top choice, but selection and rotation of themes will be important,” the article continued. “Asia first, followed by Latin America and CEMEA [Central and eastern Europe, Middle East and Africa] using a balance between growth and value.”

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