DWS has introduced a new currency-hedged share class for its Stoxx Europe 600 ETF.

The new share class offers euro-hedged exposure to the Stoxx Europe 600.

Listed on Deutsche Börse’s Xetra and Frankfurt exchanges, the Xtrackers Stoxx Europe 600 EUR Hedged UCITS ETF (XSXE GR) offers euro-hedged exposure to pan-European stocks.

The Stoxx Europe 600 index tracks 600 of the most liquid, large-, mid- and small-cap companies across 17 generally developed market countries. (The Czech Republic, which some investors treat as an emerging market, is included.)

The index is designed to act as an investable benchmark for the entire European DM region. Constituents are weighted by free-float market capitalization.

The UK represents the largest country exposure within the index, accounting for roughly a quarter (27.7%) of the total index capitalization. France, Switzerland and Germany follow with approximately a 15% allocation each.

Financials is the largest sector exposure (19.1%), followed by health care (12.2%), industrials (11.4%), personal & household goods (8.4%), and oil & gas (6.6%). (Data as of 30 April 2017)

A currency hedge within the share class minimises the effect of fluctuations between index component currencies and the euro. DWS implements the currency hedge by entering into forward currency contracts, typically of one month duration. The FX forwards lock in exchange rates at which the currency transactions will occur at a future date, thereby mitigating currency risk during the month.

The currency risk inherent in the reference index (i.e. the Stoxx Europe 600) determines what needs to be hedged. For this particular euro-based fund, DWS hedges fluctuations in the GBP/EUR, EUR/CHF, EUR/SEK, EUR/DKK, EUR/NOK and EUR/CZK currency pairs.

The fund has a total expense ratio (TER) of 0.25%, slightly more expensive than the unhedged version – the Xtrackers Stoxx Europe 600 UCITS ETF (XSX6 GY) – which costs 0.20%.

Income generated from the portfolio is reinvested and the parent ETF has over €1.6 billion in assets under management.

A less expensive alternative to the new Xtrackers share class already exists in the form of the Lyxor Core Stoxx Europe 600 (DR) – UCITS ETF Monthly Hedged to EUR – Dist (STXH GY) from Lyxor. It has a TER of 0.15% – 10 bps cheaper than the new DWS product. The Lyxor offering does differ slightly, however, in that income is distributed semi annually.