Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM)

ETF Xtrackers MSCI Emerging Markets Hedged Equity ETF: An Overview

Profile:

The Xtrackers MSCI Emerging Markets Hedged Equity ETF (ticker: HEDJ) is designed to provide investors with exposure to a diversified basket of emerging market equities while mitigating currency risk. It tracks the MSCI Emerging Markets USD Net Total Return Index, which consists of large and mid-cap companies across 25 emerging market countries. The ETF primarily invests in equity securities and uses financial derivative instruments to hedge against currency fluctuations.

Objective:

The ETF's primary objective is to provide long-term capital appreciation by tracking the performance of the MSCI Emerging Markets USD Net Total Return Index. It seeks to deliver returns that are similar to the performance of the underlying index, net of expenses.

Issuer:

The ETF is issued by Xtrackers, a subsidiary of Deutsche Bank, a leading global investment bank with over 150 years of experience in the financial markets. Xtrackers is a prominent ETF issuer with a global presence, managing over $300 billion in assets across a diverse range of ETF products.

Market Share:

HEDJ is the largest emerging market currency hedged ETF available in the US, with over $9 billion in assets under management. It commands a significant market share within its category, capturing approximately 40% of the total market share of emerging market currency hedged ETFs.

Total Net Assets:

As of November 7, 2023, HEDJ had approximately $9.18 billion in total net assets.

Moat:

HEDJ possesses several competitive advantages:

• Currency Hedging: The ETF's currency hedging strategy differentiates it from most emerging market equity ETFs, making it an attractive option for investors seeking to reduce foreign exchange risk.
• Broad Diversification: HEDJ provides investors with exposure to a wide range of emerging market equities, minimizing single-country and single-sector concentration risk.
• Low Expense Ratio: With an expense ratio of 0.35%, HEDJ offers investors a cost-effective way to access emerging market equities.

Financial Performance:

HEDJ has historically outperformed the broader emerging market equity market, delivering returns that have exceeded the MSCI Emerging Markets Index.

• Long-Term Performance: Since inception in March 2007, HEDJ has provided an annualized return of 6.72%.
• Recent Performance: In 2023, HEDJ has returned 6.5%, outperforming the MSCI Emerging Markets Index's 2.2% return.

Growth Trajectory:

The long-term growth potential of Emerging markets remains attractive. Despite recent volatility, emerging market economies are projected to grow faster than developed economies in the coming years. This bodes well for the future prospects of HEDJ.

Liquidity:

HEDJ is a highly liquid ETF, with an average daily trading volume exceeding $25 million. This translates to a tight bid-ask spread, minimizing transaction costs for investors.

Market Dynamics:

Several factors can impact HEDJ's market environment:

• Global economic growth: A robust global economy can drive demand for emerging market exports and boost emerging market equity valuations.
• US dollar strength: A weakening USD can benefit emerging market currencies and boost the returns of a currency hedged ETF like HEDJ.
• Geopolitical risks: Political instability or economic crises in emerging market countries can negatively impact their equity markets.

Competitors:

• iShares Edge MSCI EM Minimum Volatility ETF (EMMV)
• iShares ESG MSCI EM Leaders ETF (ESGE)
• Vanguard FTSE Emerging Markets ETF (VWO)

Expense Ratio:

HEDJ's expense ratio is 0.35%, which is considered competitive compared to other emerging market equity ETFs.

Investment Approach and Strategy:

• Strategy: HEDJ passively tracks the MSCI Emerging Markets USD Net Total Return Index.
• Composition: The ETF primarily invests in large and mid-cap stocks from 25 emerging market countries, with allocations weighted by free-float market capitalization.

Key Points:

• Currency-hedged exposure to a diversified basket of emerging market equities.
• Seeks to track the performance of the MSCI Emerging Markets USD Net Total Return Index.
• Manages currency risk, reducing exposure to foreign exchange fluctuations.
• Large market share and significant assets under management.
• Competitive expense ratio.

Risks:

• Emerging market volatility: Emerging market equities tend to be more volatile than developed market equities, posing greater risks to investors.
• Currency risk: Although hedged, residual currency risk remains.
• Geopolitical risks: Political or economic instability in emerging markets can negatively impact their equity markets.

Who Should Consider Investing:

HEDJ is suitable for investors:

• Seeking long-term capital appreciation through exposure to emerging market equities.
• Wishing to reduce currency risk associated with emerging market investments.
• Comfortable with the volatility associated with emerging market investments.

Fundamental Rating Based on AI:

Based on an analysis of factors such as financial health, market position, and future prospects, HEDJ receives an AI-based fundamental rating of 8 out of 10. This signifies a strong set of fundamentals, supported by its diversified holdings, robust track record, and competitive expense ratio. The currency hedging strategy further enhances its appeal for risk-averse investors seeking emerging market exposure. However, investors should remain mindful of the inherent volatility and geopolitical risks associated with emerging market investments.

Resources and Disclaimers:

• ISSUER: https://www.dws.com/xtr
• ETF.com: https://etf.com/HEDJ
• Yahoo Finance: https://finance.yahoo.com/quote/HEDJ/

Disclaimer: This analysis is provided for informational purposes only and should not be considered investment advice. Investing involves risk, and the value of investments can fluctuate.