Debt drama is back on the forefront with the government shutdown in focus as policymakers on Capitol Hill are now paying the consequences for kicking the can down the road last year. With domestic equity indexes on edge amid the debt-ceiling debate, many are starting to look to overseas markets for more attractive growth opportunities; bargain shoppers are wary of jumping back into U.S. stocks amid renewed debt woes coupled with uncertainty over the looming Fed Chairman appointment [see 3 ETF Trades To Make Before The Congress Showdown].
Deutsche Bank expanded its suite of currency-hedged ETFs on Tuesday with the launch of three new funds that offer investors a creative way to tap into foreign markets without having to deal with the nuances of foreign exchange-rate fluctuations.
Go Overseas With U.S. Dollars
One of the most overlooked aspects of international investing is the inherent currency risk; that is, when you buy Japanese stocks for example, you are inherently buying assets denominated in the local currency, in this instance the yen. As such, when the value of the dollar is declining, that exposure can work in favor of U.S. investors, as exchange rate fluctuations enhance their returns [see King Dollar ETFdb Portfolio].
However, when the U.S. dollar strengthens, the currency impact can offset gains or exacerbate losses experienced in the underlying stocks. To learn more about the impact of currency fluctuations on your foreign investments and how currency-hedged ETFs work, please refer to How To Invest Overseas – Without Currency Risk.
The new Deutsche Bank ETFs make it easy for investors to gain exposure to the desired market overseas, while still maintaining U.S. dollar-denominated assets all through the purchase of a single ticker.
The newest additions to DB’s suite of currency hedged funds are:
- MSCI AC Asia Pacific ex Japan Hedged Equity Fund (DBAP, n/a): This ETF is designed to provide exposure to booming Asia pacific markets, excluding Japan, while at the same time mitigating exposure to fluctuations between the U.S. dollar and a number of local currencies. DBAP features exposure to securities from Australia, China, Hong Kong, India, Indonesia, Malaysia, New Zealand, Singapore, South Korea, the Philippines, Taiwan, and Thailand; this ETF comes with a price tag of 0.60% annually [try our Free ETF Country Exposure Tool].
- MSCI Europe Hedged Equity Fund (DBEU, A+) This ETF is designed to provide exposure to equity securities in developed stock markets in Europe, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and selected non-U.S. currencies. DBEU features exposure to securities from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. This ETF charges 0.45% in annual expense fees.
- MSCI United Kingdom Hedged Equity Fund (DBUK, B): This ETF offers exposure to securities from the U.K. while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and the British pound. DBUK charges 0.45% in annual expense fees.
Meet The Currency-Hedged Competition
The new DB currency-hedged ETFs will face stiff competition from rival WisdomTree funds, including:
- WisdomTree Japan Hedged Equity Fund (DXJ, B-): This is an indirect competitor to DBAP; the WisdomTree ETF has managed to accumulate an impressive $11 billion in assets under management since launching in mid-2006, thought it didn’t really catch on until this year.
- WisdomTree Europe Hedged Equity Fund (HEDJ, B): This is a direct competitor to DBEU, as it also tracks European securities while hedging for currency rate fluctuations between the U.S. dollar and local currencies. HEDJ has accumulated roughly $400 million since launching at the start of 2010, although it charges a steeper 0.58% expense fee compared to DBEU’s price tag.
- WisdomTree United Kingdom Hedged Equity Fund (DXPS, A-): This is a direct competitor to DBUK, although it charges a slightly steeper expense ratio of 0.48%. DXPS has managed to accumulate close to $40 million in assets under management since debuting in July of this year.
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Disclosure: No positions at time of writing.