And Now for Some ETFs No One Will Use

by: Roger Nusbaum

Deutsche Bank just came out with the following ETFs:

  • db-X MSCI Japan Currency-Hedged Equity Fund (NYSEARCA:DBJP)
  • db-X MSCI Brazil Currency-Hedged Equity Fund (NYSEARCA:DBBR)
  • db-X MSCI Canada Currency-Hedged Equity Fund (DBCN)
  • db-X MSCI EAFE Currency-Hedged Equity Fund (NYSEARCA:DBEF)
  • db-X MSCI Emerging Markets Currency-Hedged Equity Fund (NYSEARCA:DBEM)

I am aware of one other similar fund, the WisdomTree International Hedged Equity (NYSEARCA:HEDJ), which is a broad-based fund that hedges currency. HEDJ just made Ron Rowland's ETF Deathwatch for low volume; Ron reports the assets are at $21 million. There is so little activity in that one that DB thought a whole suite of them, including one that looks like it would be similar to the apparently unpopular (or misunderstood?) HEDJ, might be a good idea.

There might be some application for a pairs trade looking for some sort of absolute return. YTD, a long-EFA/short-HEDJ combo looks like it would have returned about 4.6%, which would have come mostly from a gain in EFA; HEDJ is about flat for the year. For what it is worth just buying the WisdomTree Managed Futures ETF (NYSEARCA:WDTI) has returned 4.09%, so it's a much simpler trade with 50 basis points less in return up to this point.

Eye of the beholder on that, but of course long-EFA/short-HEDJ could have lost money. The pair trade requires the end user being correct about the currency, as opposed to WDTI simply needing to function the way it usually does -- no guarantees there either, but it is simpler for the end user.

I am all for throwing as much at the wall as possible and letting the market decide what sticks. Occasionally something will come along that will so obviously gain no traction, and this idea is one of them. To paraphrase something someone retweeted, if I'm wrong I'll eat this blog. I don't know what it means either, but it is kind of funny.