A sound investment process and strong management team underpin Xtrackers MSCI EAFE Hedged Equity ETF's Morningstar Medalist Rating of Bronze. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy merits an Above Average Process Pillar rating. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. People, Process and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

ASML Hld

National Energy Services Reunited

Moelis

Shell PLC

AstraZeneca

Novan

SAP SE

Rogers

TotalEnergies SE

BHP Billiton

The managers attempt to mimic the MSCI EAFE 100% Hedged to USD Index by holding the unhedged iShares MSCI EAFE ETF EFA and selling forward contracts of the currencies represented in the portfolio. 
EFA tracks the MSCI EAFE Index. Its constituents must pass several screens to be included in the portfolio. It first sorts all companies from 21 overseas developed markets by their free-float-adjusted market capitalization. Then it targets firms that land in the top 85% of each country’s market cap, with a buffer around that threshold to mitigate unnecessary turnover. Annual turnover for HEFA averaged 9% over the last five years, a fraction of the typical peer’s 46% average annual turnover. High turnover can raise transaction costs that take a bite out of returns. 
Additional liquidity screens ensure the investability of the index’s holdings, making it easier to track. The index weights the final list of 800 stocks by their market capitalization, an efficient method that also fosters low turnover. The portfolio reconstitutes semiannually in May and November, but it can make smaller changes at additional quarterly reviews in February and August, like adding recent IPOs.
The underlying portfolio largely reflects the composition of the foreign large-blend category, and it effectively diversifies away most stock-specific risk with 15% of its assets concentrated in its top 10 holdings. However, the benchmark does not include emerging markets or small-cap stocks, which limits the fund’s scope. 
Omitting stocks from emerging markets as well as those from North America results in country and regional allocation discrepancies relative to the category average. The fund fills those voids with larger allocations to Japanese and European stocks, including the United Kingdom. Those markets constitute 87% of the portfolio, 12 percentage points greater than the average peer. 
Sector weights look comparable to the category despite these regional differences. No sector weights deviate from the category average by more than three percentage points. A 19% allocation to financial stocks is the highest of any sector, but industrials are close behind at 16% of the portfolio. Both allocations are nearly identical to the category average. Despite their prominence, not one industrial or financial services company ranks among the fund’s top 10 holdings. Healthcare firms occupy four of the top 10 spots, led by drugmaker Novo Nordisk at just over 2%.

Note: The Process Pillar rating and analysis are indirectly assigned by an analyst. When an analyst covers a passively managed vehicle that tracks a particular index, Morningstar associates the Process Pillar rating assigned to that vehicle with the index concerned. Morningstar then maps the Process Pillar associated with a given index to any other uncovered passive strategies that track the same index. This ensures that the analyst’s view is leveraged whenever available and promotes consistency when analyzing passive vehicles associated with a given index.

Above Average

Process

Xtrackers MSCI EAFE Hedged Equity ETF benefits considerably from its equity team, earning it an Above Average People Pillar rating. There are four managers listed on the fund: Shlomo Bassous, Bryan Richards, Patrick Dwyer, Ashif Shaikh. The team is well equipped, with an average of 17 years of portfolio management experience. Together, they manage a total of 32 strategies, with a Silver asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha relative to the category median in aggregate.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

People

In the past two years, DWS has been under heavy scrutiny from the SEC and German authorities owing to greenwashing allegations that were initially raised in August 2021 by the firm’s former chief sustainability officer Desiree Fixler. The SEC announced on Sept. 25, 2023, that it has fined DWS USD 19 million for failing to implement procedures to ensure that all investment staff members were following its environmental, social, and governance policies. This relates to funds where ESG factors were analyzed alongside other financially material factors, but where managers retained discretion over ESG outcomes. In addition, the firm was ordered to pay USD 6 million for deficiencies in its anti-money-laundering processes that were uncovered in a separate investigation. The investigation by the German authorities into the firm's ESG disclosures is still ongoing.  
The SEC findings underline that despite strong senior management commitment, it takes a considerable amount of time and resources to embed sustainability across all levels of an organization for firms without a long-standing sustainability heritage. Overconfidence and failure to deal with internal criticism adequately appear to have contributed to DWS' misleading statements on ESG matters. While it's difficult to quantify the financial damage to clients and no misstatements were detected in financial disclosures or prospectuses, we believe the firm’s shortcomings have the potential to adversely affect investor outcomes. Hence, we welcome DWS' efforts to strengthen governance around ESG integration and communicate more conservatively about its ESG capabilities.
Questionable and unsteady leadership has contributed to the DWS' woes. Previous CEO Asoka Woehrmann, who had spearheaded the firm's ESG push, stepped down in June 2022 as a result of the ESG investigations. His credibility had already been harmed following his use of personal email for business purposes and a large payment made to him by a client when he was head of Deutsche Bank's private-client business before being appointed as DWS' CEO in 2018. His successor Stefan Hoops is the firm's sixth CEO in the past 10 years, highlighting the instability in the firm's top leadership. This appointment also shows the continued influence of its parent company, even after the partial IPO in 2018. Hoops has spent most of his career at Deutsche Bank but has no asset-management background.
Despite all these negative headlines and shaky leadership, DWS has managed to remain quite stable in its investment ranks. The firm has also made strides to gain greater independence. For example, since 2020, bonuses have been linked to the firm's own performance rather than to that of the bank as a whole, which supports alignment and talent retention. Variable remuneration takes into account performance of up to five years.
DWS' vast fund lineup covers all asset classes, including passive strategies, which are offered under the Xtrackers brand. Many offerings don't distinguish themselves, but there are genuine areas of strength among active strategies, and fees are competitive across many funds. While the product development process has been streamlined, and although the firm has launched new strategies at a slower pace, lineup turnover remains a concern as a culture of asset-gathering prevails. New offerings are partly related to an expansion of ESG capabilities, but the firm is also building out its thematic equity, multi-asset, alternatives, and exchange-traded fund range. 
At this stage, we continue to believe that DWS' strengths justify a Parent Pillar rating of Average despite several weaknesses in its stewardship practices, but we will closely monitor the company for further disruption.

Average

Parent

Xtrackers MSCI EAFE Hedged Equity ETF

DBEF tracks an index of developed-market equities excluding North America. It is hedged for currency exposure from a USD point of view.

International stocks finally outperformed the US stock market in 2022 and hedging continues to provide superior results in 2023. The Xtrackers ETF invests in global ex-US/Canada equity markets and seeks to track the performance of the MSCI EAFE US Dollar Hedged Index. The Xtrackers MSCI EAFE Hedged Equity ETF has provided better results compared to the unhedged iShares MSCI EAFE ETF over the past decade, thus a Buy rating for International equities.

DBEF: Another Hedging ETF Worth Holding

Xtrackers MSCI EAFE Hedged Equity ETF is a large-cap ETF invested in developed markets excluding the US and Canada. The fund intends to offset currency risks. The ETF is well-diversified across countries, sectors, and holdings.

DBEF: A Hedge With 2 Faces

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Hello! This week's ETF Wrap looks at top performers in the first half of 2023, as well as flows, as stocks rally and crypto-related funds jump so far this year.

Here are the top-performing ETFs in first half of 2023 as crypto-related funds soar

Xtrackers MSCI All World ex US Hedged Equity ETF

Xtrackers MSCI Emerging Markets Hedged Equity ETF

After a rough 2022, some investors are eying international equities to make up for their losses. Not only are many of the world's most competitive companies trading at bargain-basement prices, but some strategists believe that global stocks are poised to rally.

Invest in International Equities With DBAW, DBEF & DBEM

WisdomTree International High Dividend Fund

iShares MSCI Emerging Markets ETF

Xt EAFE Div Yld Shs

iShares Currency Hedged MSCI EAFE ETF

Legg Mason International Low Volatility High Dividend ETF

Vanguard FTSE Europe ETF

Vanguard Total International Stock ETF

This has been a terrible year for global markets. Still, some ETFs breezed past the S&P 500.

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The U.S. dollar is at its highest level since 2000. According to the IMF, since the start of this year, the dollar has appreciated 22% against the yen, 13% against the euro, and 6% against emerging market currencies.

Consider Currency-Hedged ETFs While the Dollar Is at a Record High

Xtrackers MSCI Europe Hedged Equity ETF

WisdomTree Japan Hedged Equity Fund

iShares MSCI EAFE ETF

iShares MSCI Japan ETF

WisdomTree Europe Hedged Equity Fund

iShares Currency Hedged MSCI Japan ETF

iShares Core MSCI Europe ETF

Performance is outstripping unhedged peers.

Currency-Hedged ETFs Shine on Strong Dollar

Xtrackers MSCI Japan Hedged Equity ETF

Investors considering enhancing their portfolios with targeted exposure to one of the world's largest economies should consider the Xtrackers MSCI Japan Hedged Equity ETF (DBJP). DBJP seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Japan US Dollar Hedged Index.

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Xtrackers MSCI All World ex US High Dividend Yield Equity ETF

International currency moves will impact investors' foreign equity allocations, but investors can turn to currency-hedged exchange traded fund strategies to mitigate the foreign exchange risks and provide a purer play on the underlying overseas markets. In the upcoming webcast, A Strategy to Thrive in a Strong U.S.

Currency Hedged ETFs Could Help Better Manage Your International Market Exposure

As the U.S. dollar strengthens amid changing central bank monetary policy, global equity investors could find their international market exposures experiencing unintended foreign exchange currency risks. In the upcoming webcast, A Strategy to Thrive in a Strong U.S.

A Strategy to Thrive in a Strong U.S. Dollar Environment

While U.S. equity markets are down in 2022, advisors have not experienced significant benefits of diversification through international equity markets, particularly if they ignored the small suite of currency-hedged products available. Indeed, the iShares MSCI EAFE ETF (EFA) was down 12% year-to-date through June 8, with the Japan segment of the index down 15%.

Many Currency-Hedged ETFs Died Too Early

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In an environment of global inflation and rising interest rates, advisors and investors should be aware of how changes in currency exchange rates can affect their international investments. A recent webcast featuring DWS and 3EDGE and moderated by Tom Lydon, CEO of ETF Trends, discusses short-term and long-term outlooks regarding currency, the currency outlook worldwide [.

The Value and Importance of Currency Hedging in 2022

Currency markets are often overlooked and misunderstood. But as central banks eye new rate changes and inflation proves less transitory than expected, investors would do well to carefully consider how currency exchange rates can impact their international equity allocations.

DWS's Currency Forecast for 2022: Don't Be Caught Off-Guard by Currency Fluctuations

Inflation fears are constantly swirling in the capital markets, putting upward pressure on the U.S. dollar on the prospect of higher rates, which may help bolster the case for the Xtrackers MSCI EAFE Hedged Equity ETF (DBEF). When the dollar rises, DBEF softens the blow for affected currencies in its underlying index, which is mainly [.

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iShares Core MSCI EAFE ETF

IQ 500 International ETF

Knowledge Leaders Developed World ETF

First Trust RiverFront Dynamic Developed International ETF

Hartford Multifactor Developed Markets (ex-US) ETF

iShares MSCI World ETF

Vanguard FTSE Developed Markets ETF

Developed-market (DM) household savings recorded a significant gain last year, with an increase equivalent to 10% of combined gross domestic product (GDP). This build-up is likely to bolster consumption as restrictions on economic and social activity are removed and pent-up demand unlocked.

Will Household Savings Provide An Upside Growth Surprise?

The Federal Reserve chose to keep rates in check yesterday. The U.S. dollar unexpectedly rose following the announcement, but it could be short-lived, warranting the case for a dollar hedging strategy through ETFs like the Xtrackers MSCI EAFE Hedged Equity ETF (DBEF).

After Latest Fed Statement, Hedge Your Dollars with the DBEF ETF

Just when it seems like it was safe to get back into the markets and turn on the risk again, a second wave of Covid-19 cases brought more market uncertainty back.

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With a vaccine looming and a new U.S. president ready for installation in the White House, it might seem that good times are ready to roll again. That might be the case for equities, but the U.S. dollar is struggling.

Scared of a Declining Dollar? An ETF to Hedge Against It

A volatile election week only amplifies the case for currency hedging. With the dollar fluxing up and down against its foreign counterparts, it's important for investors to get currency hedging exposure amid all the volatility that's certain to come in an election week.

Don't Forget to Hedge Your Currencies in this Volatile Week

Getting global diversification comes with its benefits by investing in international equities or bonds, but they don't come without their caveats. Investors can minimize the risk of global investing by implementing a currency hedging strategy.

News for Xtrackers MSCI EAFE Hedged Equity ETF ETF (DBEF)