With a wave of policy easing in the developed economies and even in some emerging countries, interest-rate sensitive sectors have the potential to go through the roofs. Investors should note that rate-sensitive sectors like utilities and real estate may be intriguing choices for investors looking for yields in the current environment of ultra low (even negative in a few countries) rates (read: Best ETF Strategies for 2015).
The payouts are higher in these sectors which quench investors’ thirst. Also, the rock-bottom rates are quite favorable for these companies to operate in as these require an immense debt burden. As a result, a low rate environment leads to lower interest obligation of these companies.
However, investors should note that while global infrastructure and the real estate space are good bets now, a much stronger U.S. dollar (due to the policy differential between the U.S. and the rest of the developed world) can cut back on the gains realized abroad. Thus, currency hedged ETF investing is in vogue. When the U.S. dollar gains more strength, especially after Fed tightening sometime this year, a hedged investment will likely outperform an unhedged one (read: Top Ranked Currency Hedged ETFs in Focus on Dollar Surge).
In this pursuit, Deutsche Bank recently launched two currency-hedged global ETFs targeting the infrastructure and real estate sectors. Let’s dig a little deeper and understand the funds clearly.
Deutsche X-trackers S&P Hedged Global Infrastructure ETF (DBIF) in Focus
This product follows the S&P Global Infrastructure Index (USD) (Hedged) (Net TR). This benchmark looks to provide access to global infrastructure equities, while at the same time rules out the impact of the changes in value of the global currencies against the dollar. The product costs cheaper in the space charging 45 basis points a year in fees.
Its 74-holding portfolio is well-spread across the stocks with no stock accounting for more than 5.1% of the total. Kinder Morgan Inc. is the top holding of the fund. In terms of sectors, utilities take the top spot at just over 35%, though the industrials sector also receives a sizable 30% of the fund. Stocks are mostly large caps.
As far as country exposure is concerned, the U.S. takes the top position at over 35%. No other country gets as much exposure as the second country holding gets about 8% share of the total. Canada, Australia and Italy round out the top four holdings, with each taking about 8% of the fund. Continent-wise, North America rules the portfolio with 45% share while Europe (29.8%) and Asia (22.8%) get the next positions.
Competition: There isn’t much peer pressure in the global infrastructure ETF space. Only a handful of players rule with the highest asset gatherer being iShares S&P Global Infrastructure Index Fund (IGF). This product also focuses in on global utilities ranging from transportation to electricity services, and has already seen a great deal of interest from investors, as evidenced by its $1.22 billion in assets under management (read: Inside Guggenheim's New High Income Infrastructure ETF).
The newly launched ETF will also face stiff competition from iShares S&P Global Utilities Index Fund (JXI) which has amassed about $188.5 million in assets. Though several issuers are targeting this space lately, none of the products are currency-hedged. So it will not be hard for DBIF to unseat some of sector rulers from their top roost over time.
Deutsche X-trackers Dow Jones Hedged International Real Estate ETF (DBRE) in Focus
This new fund looks to track the Dow Jones Global ex-U.S. Select Real Estate Securities Total Return Net Index (USD) Hedged. This benchmark provides exposure to global equities ex-U.S., while mitigating the influence of greenback on the concerned currencies. The fund costs 48 basis points a year, making it slightly cheaper than the average expense ratio in the global Real Estate ETFs (read: International Real Estate ETFs to Benefit from Global Turmoil).
The fund’s portfolio consists of about 122 stocks in total, and is dominated by Brookfield Asset Manage CL-A shares which accounts for over 7% of the fund’s assets. For countries, Japan takes the top spot at about 22%, followed by U.K. (15%) and Australia (12.7%). Each of the next three positions – Canada, France and Hong Kong – gets 10% share of the fund.
Competition: Global Real Estate space is rather stuffed. The most popular is SPDR Dow Jones International Real Estate ETF (RWX) which has over $5 billion in assets. Vanguard Global ex-U.S. Real Estate ETF (VNQI) and SPDR Dow Jones Global Real Estate ETF (RWO) are also quite popular, each managing assets over $2.1 billion. Here also, the absence of currency-hedged products will give the newly launched ETF an edge over its peers.
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