Some Currency Hedged ETFs Outperforming Unhedged Peers (DBEM, DBBR)
The resurgent U.S. dollar has been one of this year's more prominent themes. As the euro has crumbled and select emerging markets currencies have wilted, global investors have been left with precious few options regarding reliable currencies.
The greenback has obliged, helping the PowerShares DB US Dollar Index Bullish (NYSE: UUP), basically the U.S. Dollar Index in ETF form, jump two percent year-to-date. UUP is not the only beneficiary of the dollar's renewed strength. Several currency-hedged ETFs, an often overlooked corner of the ETF landscape, have been outpacing those funds with exposure to currency fluctuations.
Just look at the performances of these hedged ETFs relative their counterparts that leave investors exposed to gyrations in the local currency.
db-X MSCI Brazil Hedged Equity ETF (NYSE: DBBR) The db-X MSCI Brazil Hedged Equity ETF may not be the best example simply because the fund has not generated positive returns recently. Then again, not many Brazil-specific ETFs have. In the past three months, the WisdomTree Dreyfus Brazilian Real ETF (NYSE: BZF) has slipped by almost seven percent.
That slide has been one of several factors contributing to the 17.5 percent plunge for the iShares MSCI Brazil Index Fund (NYSE: EWZ). Again, DBBR is not setting the world on fire, but with a 9.1 percent loss in the past 90 days, the fund has certainly been less bad than EWZ.
db-X MSCI EAFE Currency-Hedged Equity Fund (NYSE: DBEF) DBEF is the hedged answer to the iShares MSCI EAFE Index Fund (NYSE: EFA) and that means heavy exposure to countries such as the U.K., France, Germany and Australia. It is a good thing DBEF is a hedged currency play because neither the pound, the euro nor the Australian dollar have been performing well this year. Year-to-date, DBEF, which is 13-months-old and has over $13 million in assets under management, has slightly outpaced EFA.
WisdomTree Japan Hedged Equity Fund (NYSE: DXJ) Japanese equities have held up pretty well this year and some might say there are opportunities to be had in the land of the rising sun. As an export-driven economy, Japan is vulnerable to the whims of the yen. Those whims have not been overly punitive this year as the iShares MSCI Japan Index Fund (NYSE: EWJ) is only sporting a slight year-to-date loss.
On the other hand, the protection offered by an ETF such as DXJ has proven profitable. A gain of almost 1.7 percent makes DXJ one of the better-performing Japan ETFs in 2012.
db-X MSCI Emerging Markets Currency-Hedged Equity Fund (NYSE: DBEM) The case of the db-X MSCI Emerging Markets Currency-Hedged Equity Fund versus the iShares MSCI Emerging Markets Index Fund (NYSE: EEM) is comparable to DBBR against EWZ. Neither have done much worth writing home about, but one has been clearly been less bad than the other in recent weeks.
DBEM could be worth a look for those investors that are holding multiple emerging markets positions and need some form of currency protection. The ETF's index tracks the following countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.
In the past 90 days, DBEM has outperformed EEM by more than 300 basis points.
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