This ETF offers exposure to emerging markets, making DBEM one of many products offering exposure to an asset class that is often a core component of long-term, buy-and-hold portfolios. This fund is similar to products such as EEM and VWO as far as the underlying portfolio; the overlap between these ETFs is nearly perfect. But DBEM is unique from other emerging markets ETFs because it hedges out the currency exposure that an investment in international equities entails. In addition to establishing a long position in international stocks, investors using most emerging markets ETFs are also going long the currencies of the underlying stocks (including the Brazilian real, Indian rupee, and Russian ruble) and short the U.S. dollar. DBEM uses short term forward contracts to neutralize the impact of exchange rate fluctuations, essentially isolating the local performance of the emerging market stocks as the driver of returns. While this difference may seem minor, the impact of currency movements on equities can be a significant source of return--both positive and negative--to U.S. based investors. Though DBEM's portfolio is nearly identical to those of EEM and VWO, the risk/return profiles of these products can vary significantly.
Investors who expect the U.S. dollar to strengthen relative to its developed market rivals may prefer DBEM as the optimal means of establishing exposure to the emerging markets region, as this fund should outperform EEM / VWO when the U.S. currency appreciates. Those with a bearish outlook for the greenback may prefer to leave currency exposure unhedged, utilizing a fund such as EEM instead. Those investors without a strong view in either direction might use a mix of both hedged and unhedged EAFE ETFs (eg 50% in DBEM and 50% in EEM).
Given the broad focus of this ETF, DBEM might be very useful to those building a long-term portfolio; the EAFE region generally receives a big weighting in most portfolios. DBEM can also be useful for establishing a currency-neutral tactical tilt towards this corner of the global equity market.