Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM) seeks to track the MSCI Emerging Markets 100% USD Hedged Index, which measures the performance of large- and mid-cap stocks across 24 emerging market countries while hedging currency exposure back to the U.S. dollar to eliminate foreign exchange risk.
How It Works
DBEM uses a passively managed, market-capitalization-weighted approach that mirrors its benchmark index while employing currency forward contracts to hedge foreign exchange exposure. The fund holds stocks from emerging markets including China, Taiwan, India, South Korea, and Brazil, with rebalancing occurring quarterly. Currency hedging is implemented through rolling one-month forward contracts, neutralizing the impact of emerging market currency fluctuations against the U.S. dollar on investment returns.
Key Features
- Currency hedging eliminates foreign exchange risk, allowing pure exposure to emerging market stock performance without currency volatility
- Covers 24 emerging market countries with focus on large- and mid-cap companies, providing broad diversification across developing economies
- Launched in 2011 with established track record, though current AUM and performance data suggest limited investor adoption
Risks
- This ETF can lose value if emerging market economies experience political instability, regulatory changes, or economic crises that disproportionately impact developing nations
- Currency hedging costs and tracking error can reduce returns, particularly during periods when emerging market currencies strengthen significantly against the dollar
- Emerging market stocks are inherently more volatile than developed markets, potentially declining 40-60% during global financial crises with slower recovery periods
Who Should Own This
Best suited as a satellite holding (5-15% of equity allocation) for investors with 7+ year time horizons seeking emerging market exposure without currency risk. High risk tolerance required due to emerging market volatility. Appropriate for investors who want developing economy growth potential but prefer to avoid the additional complexity of foreign exchange fluctuations.