DWS: A Long History of Differentiation

A look at its top ETFs provides a testament to its history in the ETF space.  Its largest fund, the $7.6 billion Xtrackers MSCI EAFE Hedged Equity ETF (DBEF B+) debuted in 2011 and saw its popularity soar during the 2014-2015 frenzy around currency hedging. Unlike many currency hedged equity ETFs, it did not fade away after the furor subsided.

Arne Noack, head of DWS Xtrackers, Americas, notes that the fund didn’t do much in its first few years, only really catching investor interest as quantitative easing caused many to seek ways to mitigate currency fluctuations. A strengthening dollar in 2015 put a damper on the demand for currency-hedged equity products, however.

Still, “DBEF never went away. It always was a multi-billion dollar fund,” Noack commented. More recently, it had consistent inflows from the latter half of 2023 until the past couple months, when it saw its first meaningful outflows in a while, during the market chaos around tariffs. In the past 12 months, however, it has pulled in more than $1.5 billion.

DWS took a different direction with its high-yield corporate bond ETF, the Xtrackers USD High Yield Corporate Bond ETF (HYLB B+). It deviated from the precedent set by many other high-yield funds to take a more liquid stance in the space. As a result, it excludes many securities with lower credit quality ratings, such as those rated CCC.

Noack notes that such bonds have grown more expensive in the last year relative to the higher-rated securities classed as “high yield.” That means investors aren’t being compensated for the added risk they are taking on.

Moreover, HYLB, the second-largest fund in DWS’s lineup at $3.6 billion, is priced at a rock-bottom 0.05%, nearly 10 times cheaper than its largest competitor.

DWS also offers two other high-yield bond ETFs providing more exposure to the higher-quality securities in the category. These are the Xtrackers Low Beta High Yield Bond ETF (HYDW A-) and the Xtrackers USD High Yield BB-B ex Financials ETF (BHYB B).

The Xtrackers MSCI USA Climate Action Equity ETF (USCA B+) is notable, not just because at $2.7 billion it’s DWS’s third-largest fund. It’s also the second ETF for which DWS has collaborated with Ilmarinen, a Finnish insurer, to launch a well-seeded fund.

USCA debuted in April 2023, seeded with roughly $2 billion in assets from the insurance company. At the time, it was the largest ETF launch in the U.S. Ilmarinen still holds around 80% of the fund.

However, USCA wasn’t the first time DWS teamed up with Ilmarinen. Four years prior, DWS launched the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG B) with $870 million from the insurer. USSG launched with a clear ESG mandate. USCA, however, specifically mentions “climate” in its name. It made its debut right around the time that sentiment began to turn against the ESG concept. Although the insurer isn’t among USSG’s largest shareholders today, the fund has more than $500 million in assets.

Both USCA and USSG have low expense ratios of just 0.07% and 0.09%, respectively. Ilmarinen has said that because these ETFs launched in the U.S., the funds trade during the same hours as their holdings, which it prefers.

If you look beyond the top three funds, another of DWS’s leading ETFs with an interesting history is the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR B+). When it launched in June 2013, it was the first U.S.-listed ETF to invest directly in China’s A-Shares market. That space was typically closed to foreign investors.

ASHR blazed a trail that was followed by a host of other subsequent ETFs. However, over a decade later, ASHR is one of the few of that first wave of A-Shares ETFs still standing. At $1.9 billion, it’s the largest ETF that invests exclusively in China’s A-Shares market.

Noack commented that Europe and China are the primary beneficiaries of the recent rotation of non-U.S. investors out of U.S. stocks. The release of the DeepSeek AI model in January spurred a rally in China’s tech stocks, particularly those classified as H Shares. ASHR and its A Shares holdings have not risen to the same degree.

“[ASHR] is a very meaningful barometer for the overall economic developments in the Chinese market,” Noack said. He pointed out that China’s government has indicated it is willing to take steps to provide the market with “meaningful” support. China’s stock market remains relatively cheap compared with the U.S. market, he noted.

Noack highlighted a number of key events. Last year, DWS launched its first actively managed ETF, the Xtrackers RREEF Global Natural Resources ETF (NRES B-), opening a whole new field to the issuer, which is currently marketing the fund to investors. Also in 2024, the firm filed with the SEC requesting permission to launch funds offering both ETF and mutual fund share classes.

In addition to “keenly watching” those parts of the ETF market, Noack said the firm is looking to roll out more ETFs in both the active and passive spaces. Investors can look forward to “a nice mix of active strategies for which we have a standing track record at DWS with some [new] index-based ideas.”

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