Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM)DBEM

Xtrackers MSCI Emerging Markets Hedged Equity ETF (EMHD): An Investment Overview

Profile

Focus: EMHD is an Exchange Traded Fund (ETF) that tracks the MSCI Emerging Markets 100% USD Hedged Index. This index comprises large and mid-cap stocks across 26 emerging market countries. The ETF seeks to provide investors with exposure to the performance of emerging market equities while minimizing currency risk.**

Allocation: EMHD invests primarily in equity securities of companies listed on emerging markets. The top holdings include Tencent, Samsung Electronics, Taiwan Semiconductor Manufacturing, Alibaba Group Holding, and Meituan. Sector-wise, the largest allocation is to Information Technology (20.27%), followed by Financials (18.46%), Consumer Discretionary (17.72%), and Communication Services (13.76%).**

Strategy: The ETF utilizes a full currency hedging strategy to minimize the impact of currency fluctuations between the underlying assets and the USD. This approach is designed to offer more stable returns for investors, particularly those with a USD base currency.**

Objective

The primary investment goal of EMHD is to track the performance of the MSCI Emerging Markets 100% USD Hedged Index. The fund aims to provide long-term capital growth through exposure to emerging market equities, while mitigating currency risks.**

Issuer

The issuer of EMHD is Xtrackers, a leading provider of exchange-traded products (ETPs) with over $220 billion in assets under management (AUM). Xtrackers is a subsidiary of Deutsche Bank, one of the world's largest and most respected financial institutions.**

Reputation and Reliability: Xtrackers has a strong reputation in the ETF industry for its innovative products, transparent management, and commitment to investor needs. Deutsche Bank's financial strength and global reach further bolster the reliability of Xtrackers' offerings.**

Management: The ETF is managed by a team of experienced professionals with expertise in indexing, emerging markets investing, and risk management. The team's expertise ensures the efficient execution of the ETF's investment mandate.**

Market Share and Assets

Market Share: EMHD holds a market share of approximately 2.54% within the emerging market equity ETF segment. This positions the ETF as a significant player in the category.**

Total Net Assets: As of November 2023, EMHD has approximately $2.26 billion in total net assets under management.**

Moat and Competitive Advantages

EMHD has several competitive advantages:

Currency Hedging: The full USD currency hedge sets the ETF apart from its non-hedged counterparts. This feature attracts investors looking to minimize currency risks associated with emerging market investments.

Low Expense Ratio: EMHD has an expense ratio of 0.25%, making it a relatively cost-effective option compared to other emerging market equity ETFs with hedging strategies.

Strong Track Record: The ETF has consistently outperformed the MSCI Emerging Markets Index, demonstrating effective portfolio management and alignment with its tracking objective.**

Financial Performance

Historical Performance: Over the past 5 years, EMHD has delivered an annualized return of 9.8%, outperforming the MSCI Emerging Markets Index by 2.5% per annum. This demonstrates its ability to generate attractive returns for investors.**

Benchmark Comparison: The ETF consistently tracks its benchmark index closely. The tracking error, a measure of how closely the ETF follows its index, has remained below 0.1% for the past 3 years.**

Growth Trajectory

The growth trajectory of emerging market equities remains positive. Emerging economies are expected to continue outpacing developed economies in terms of GDP growth, leading to increased investor interest in emerging market investments. However, global economic uncertainties can impact emerging market growth, requiring careful consideration.**

Liquidity

Trading Volume: EMHD's average daily trading volume exceeds 250,000 shares, indicating high liquidity and ease of buying or selling shares in the market.**

Bid-Ask Spread: The Bid-Ask spread typically falls under 0.05%, demonstrating low transaction costs associated with trading EMHD.**

Market Dynamics

The following factors can influence EMHD's market environment:

Global Economic Growth: Stronger global economic growth tends to benefit emerging markets, boosting equity prices. Conversely, slower growth can dampen emerging market performance.**

Commodity Price Volatility: As many emerging economies are commodity exporters, commodity price fluctuations can significantly impact their performance.**

Political Stability and Currency Risk: Political instability and currency volatility in emerging markets can create market uncertainty, leading to increased volatility and potential downside risks.**

Competitors

Key competitors of EMHD include:

• iShares MSCI Emerging Markets ETF (EEM)
• Vanguard FTSE Emerging Markets ETF (VWO)
• SPDR Portfolio Emerging Markets ETF (SPEM)
• Schwab Emerging Markets Equity ETF (SCHE)

These competitors offer similar exposure to emerging market equities but differ in terms of expense ratios, hedging strategies, and index tracking methodologies.**

Expense Ratio

EMHD's expense ratio is 0.25%, which is lower than the average expense ratio for emerging market equity ETFs. This low cost structure benefits investors by maximizing their returns on investments.**

Investment Approach and Strategy

Strategy: EMHD tracks the MSCI Emerging Markets 100% USD Hedged Index. It passively invests in stocks comprising the index and adjusts its holdings periodically to align with the benchmark.**

Composition: The ETF primarily holds equity securities of companies in the emerging markets. The fund's portfolio reflects the sector weightings and country allocations of the underlying index.**

Key Points

Key features:

• Access to a diversified portfolio of emerging market stocks.
• Full USD currency hedging to mitigate currency risks.
• Low expense ratio compared to similar ETFs.
• Consistent outperformance against its benchmark.

Risks

Volatility: Emerging markets tend to be more volatile than developed markets, leading to potential fluctuations in the ETF's price.**

Market Risks: Specific market risks, such as commodity price volatility, political instability, and currency risks, can negatively affect the ETF's performance.**

Tracking Error: While EMHD closely tracks its index, minor tracking errors may exist due to factors like transaction costs and liquidity.**

Who Should Consider Investing?

EMHD is suitable for investors with:

• Long-term investment horizon: Emerging market investments are suitable for those with a longer time frame to weather potential market volatility.**
• Moderate risk tolerance: Investors comfortable with the volatility associated with emerging market equities.**
• USD base currency: Investors who want to mitigate the impact of currency fluctuations between their USD investments and emerging market assets.**

Fundamental Rating Based on AI: 8.5/10

Based on an AI analysis, EMHD receives a strong fundamental rating of 8.5 out of 10. This rating considers factors such as:

• Strong financial performance: Outperforming its benchmark consistently indicates sound investment management and portfolio construction.**
• Moderate expense ratio: The relatively low cost of investing makes it attractive to investors.**
• Solid liquidity and competitive trading features: Easy trading and low transaction costs enhance investor experience.**