Should the U.S. dollar rebound from its recent doldrums, the Deutsche X-trackers MSCI EAFE Small Cap Hedged Equity ETF (CBOE: DBES) is an exchange traded fund to consider.
DBES “seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EAFE Small Cap U.S. Dollar Hedged Index. DBES offers investors purer access to small-cap developed market equities while mitigating exposure to fluctuations between the value of the U.S. dollar and select foreign currencies,” according to Deutsche Asset Management.
To its credit, DBES, a currency hedged ETF designed to exploit dollar strength against other currencies, turned in a solid performance last year even as the greenback was one of the worst-performing developed market currencies. Year-to-date, DBES is up 2.6%.
Small-caps are also focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar. Still, it pays to look outside the U.S. for other small-cap opportunities.
DBES, which tracks the MSCI EAFE Small Cap US Dollar Hedged Index, holds just over 1,000 stocks. The ETF allocates a combined 48.5% of its weight to Japan and the U.K. The Japan exposure is boosted DBEF in 2017 as that country was home to some of the world’s best-performing small-caps. DBES’s top 10 geographic exposures combine for 84% of the fund’s weight.
The hedged ETF would outperform similar non-hedged strategies if foreign currencies depreciate against the greenback. DBES allocates nearly 37.5% of its combined weight to industrial and consumer discretionary stocks. Financial services, technology and real estate names combine for nearly a third of the ETF’s roster.
DBES charges 0.45% per year, or $45 on a $10,000 investment.
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