ETFs 403: Currencies & Currency Hedging

Transcription

1 ETFs 403: Currencies & Currency Hedging Dennis Hudachek, Moderator Senior ETF Specialist ETF.com Steven Dunn, Panelist Vice President ETF Investment Specialist Deutsche Asset & Wealth Management

2 ETFs 403: Currencies & Currency Hedging Dennis Hudachek Moderator Senior ETF Specialist ETF.com Steven Dunn Panelist Vice President ETF Investment Specialist Deutsche Asset & Wealth Management

3 Currencies & Currency Hedging Agenda Why are Currency ETFs Important? How Do I Pick the Right Currency ETF? Hedging and Currency-Hedged ETFs

4 10 Largest Currency ETFs Ticker Fund Name AUM ($M) 2013 Flows ($M) 2013 Returns UUP PowerShares DB US Dollar Index Bullish % YCS ProShares UltraShort Yen % BZF WisdomTree Brazilian Real % EUO ProShares UltraShort Euro % FXA CurrencyShares Australian Dollar % FXC CurrencyShares Canadian Dollar % FXF CurrencyShares Swiss Franc % CYB WisdomTree Chinese Yuan % FXE CurrencyShares Euro % DBV PowerShares DB G10 Currency Harvest % As of 1/14/2014

5 Why are Currency ETFs Important? Currency ETF Essentials and Uses Speculation Exposure to Spot Exchange Rates Access to Local Interest Rates Carry Trade Hedging Full or Partial Investment Diversification

6 Choosing the Right Currency ETF Single Currency ETFs Short Dollar Long Dollar Basket Currency ETFs Short Dollar Long Dollar Euro 4 3 Emerging Markets 4 Australian Dollar 2 1 US Dollar Index 2 2 Brazilian Real 1 DM/EM Blend 2 1 Canadian Dollar 1 Long/Short Carry 2 Chinese Renminbi 3 TOTAL 10 3 Indian Rupee 2 Japanese Yen 3 1 Pound Sterling 2 Singapore Dollar 1 Swedish Krona 1 Swiss Franc 1 TOTAL 21 5

7 Choosing the Right Currency ETF What is the ETF s Structure? Grantor Trust ( 33 Act) Open-ended Fund ( 40 Act) Commodities Pool ( 33 Act) Exchange-Traded Note ( 33 Act) What is the ETF s Investment Strategy? What are the ETF s Tax Implications?

8 Grantor Trust Legal Structure Issuers Ticker Examples Holdings Distribution Frequency Counterparty Risk Grantor Trust CurrencyShares FXE, FXA, FXC, FXF Physical Currency Monthly JP Morgan (Depository) Max ST/LT Tax Rate % 39.60/39.60 Tax Reporting 1099 Marked to Market? No

9 Open-Ended Fund Legal Structure Issuers Ticker Examples Holdings Distribution Frequency Counterparty Risk Open-Ended WisdomTree, PIMCO BZF, CYB, USDU, FORX Forward Contracts, Short-Term Fixed Income Annually, Quarterly Varied by contract Max ST/LT Tax Rate % 20.00/39.60 Tax Reporting 1099 Marked to Market? No

10 Commodities Pool Legal Structure Issuers Ticker Examples Holdings Distribution Frequency Counterparty Risk Commodities Pool ProShares, PowerShares UUP, YCS, EUO Futures, Swaps, Forwards Annually, N/A N/A Max ST/LT Tax Rate % 27.84/27.84* Tax Reporting Marked to Market? K-1 (Limited Partnership) Yes * Blended rate of 60% Long-Term and 40% Short-Term

11 Exchange-Traded Note Legal Structure Issuers Ticker Examples Holdings Distribution Frequency Counterparty Risk Exchange-Traded Note Market Vectors, ipath CNY, ERO, AYT N/A Monthly, N/A Issuing Bank Max ST/LT Tax Rate % 39.60/39.60 Tax Reporting 1099 Marked to Market? No

12 Important Information DBX Advisors LLC (DBX) is the investment advisor to the db X-trackers funds, which are distributed by ALPS Distributors, Inc. (ALPS). DBX is a subsidiary of Deutsche Bank AG, neither of which is affiliated with ALPS. Carefully consider the funds investment objectives, risk factors and charges and expenses before investing. This and other important information can be found in the funds prospectuses, which may be obtained by calling DBX-ETFS ( ) or by viewing or downloading a prospectus. Read the prospectus carefully before investing. Risks Investing involves risk, including possible loss of principal. Funds that invest in specific countries or geographic regions may be more volatile than investing in broadly diversified funds. Securities focusing on a single country may be more volatile. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable currency fluctuations, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. There are additional risks because of potential fluctuations in currency and interest rates. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and increase volatility. Indexes are unmanaged and you cannot invest directly in an index. Shares of the funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only be purchased and redeemed directly from the funds by authorized participants in very large creation/redemption units. There is no assurance that an active trading market for shares of a fund will develop or be maintained. MSCI is a servicemark of MSCI Inc. (MSCI) and has been licensed for use by DBX. The funds are not sponsored, endorsed, issued, sold or promoted by MSCI nor does MSCI make any representation regarding the advisability of investing in the funds.

13 Definitions Price-to-earnings ratio (P/E) ratio compares a company s current share price to its per-share earnings. Standard deviation is often used to represent the volatility of an investment and depicts how widely an investment s returns vary from the investment s average return over a certain period. The MSCI EAFE Index captures large and mid-cap representation across developed markets countries around the world, excluding the United States and Canada. The MSCI EAFE U.S. Dollar Hedged Index is calculated using the same methodology as its corresponding MSCI EAFE Index, but is designed to mitigate exposure to fluctuations between the value of the U.S. dollar and non-u.s. currencies. The MSCI Emerging Markets Index captures large and mid-cap representation across 21 emerging markets. The MSCI Emerging Markets U.S. Dollar Hedged Index is calculated using the same methodology as its corresponding MSCI Emerging Markets Index, but is designed to mitigate exposure to fluctuations between the value of the U.S. dollar and non-u.s. currencies. The MSCI Brazil Index is designed to track the performance of the large and mid-cap segments of the Brazilian market. The MSCI Brazil U.S. Dollar Hedged Index is calculated using the same methodology as its corresponding MSCI Brazil Index, but is designed to mitigate exposure to fluctuations between the value of the U.S. dollar and non-u.s. currencies. The MSCI Germany Index is designed to track the performance of the large and mid-cap segments of the German market. The MSCI Germany U.S. Dollar Hedged Index is calculated using the same methodology as its corresponding MSCI Germany Index, but is designed to mitigate exposure to fluctuations between the value of the U.S. dollar and non-u.s. currencies.

14 Definitions cont The MSCI Japan Index is designed to track the performance of the large and mid-cap segments of the Japanese market. The MSCI Japan U.S. Dollar Hedged Index is calculated using the same methodology as its corresponding MSCI Japan Index, but is designed to mitigate exposure to fluctuations between the value of the U.S. dollar and non-u.s. currencies. The MSCI Europe Index captures large and mid-cap representation across 16 developed-markets countries and five emerging-markets countries in Europe. The MSCI Europe U.S. Dollar Hedged Index is designed to provide exposure to equity securities in 16 developed European stock markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and selected non-u.s. currencies. The MSCI Asia ex Japan Index captures large and mid-cap representation across two of three developedmarkets countries (excluding Japan) and eight emerging-market countries in Asia. The MSCI Asia Pacific Ex Japan U.S. Dollar Hedged Index is designed to provide exposure to equity securities in developed and emerging stock markets in the Asia-Pacific region (excluding Japan), while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and selected non-u.s. currencies. The MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the UK market. The MSCI United Kingdom U.S. Dollar Hedged Index is designed to provide exposure to the equity market of the United Kingdom, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and British pound sterling. The U.S. Dollar Index measures the performance of the U.S. dollar vs. a basket of currencies including the euro, yen, British pound, Canadian dollar and Swiss franc. The S&P 500 Index tracks the performance of 500 leading U.S. stocks and is widely considered representative of the U.S. equity market. It is not possible to invest directly in an index.

15 Agenda 01 About Deutsche Asset & Wealth Management 02 Understanding foreign currency risk 03 Appendix: How currency hedging works

16 Deutsche Asset & Wealth Management Deutsche Asset & Wealth Management is proud to offer a complete suite of active, passive and alternative investments catering to retail, institutional and wealth management clients. By the numbers About us With more than $1.2 trillion of invested assets globally as of 12/31/12, Deutsche Asset & Wealth Management is one of the world s largest and best-known investment organizations. 1 #5 provider of exchange-traded products globally; #2 in Europe 2 #1 retail asset manager in Germany; #3 in Europe 3 #1 insurance asset manager globally 4 #5 alternative investments manager globally 5 Deutsche Asset & Wealth Management s investment platform is structured to deliver world-class investment strategies across the entire asset class spectrum. The extensive capabilities of our integrated organization creates new opportunities to bolster our traditional active management product line. 1. Source: Deutsche Asset & Wealth Management. 2. Source: BlackRock as of 10/31/12. An exchange-traded product, such as an exchange-traded fund, is a security that tracks an index or asset like an index fund, but trades like a stock on an exchange. 3. Source: Asset manager in Germany, BVI as of 9/12. Asset manager in Europe, Lipper as of 9/ Source: Insurance Asset Manager as of 12/ Source: Towers Watson 2012 Alternatives Study.

17 Exchange-Traded Products A global ETP powerhouse We manage more than 300 exchange-traded products worldwide, with more than $66 billion in assets in the United States, Europe, Africa and Asia, making us one of the world s leading providers of exchange-traded products. 1 We launched the first exchange-traded fund (ETF) for U.S. investors that provides broad exposure to commodities. Our U.S. business In the United States, we manage 59 products (27 ETFs and 32 exchange-traded notes, ETNs) with approximately $11.5 billion in assets under management. 2 Our full lineup provides innovative solutions in cost-effective, exchange-listed wrappers. 42% ETFs 8% Product breakdown 31% 19% 56% ETNs 6% 38% Intl. currency hedged Commodity & currency Target date Income Fixed income Commodity Currency We are proud to market a full suite of db X-trackers MSCI international currency-hedged equity funds. 1. Source: Deutsche Asset & Wealth Management as of 9/30/ Source: Deutsche Asset & Wealth Management as of 9/30/13. An exchange-traded product, such as an exchange-traded fund, is a security that tracks an index or asset like an index fund, but trades like a stock on an exchange.

18 U.S. exchange-traded funds db X-trackers International currency-hedged equity db X-trackers MSCI Brazil Hedged Equity Fund (DBBR) db X-trackers MSCI EAFE Hedged Equity Fund (DBEF) db X-trackers MSCI Emerging Markets Hedged Equity Fund (DBEM) db X-trackers MSCI Germany Hedged Equity Fund (DBGR) db X-trackers MSCI Japan Hedged Equity Fund (DBJP) db X-trackers MSCI Asia Pacific Ex Japan Hedged Equity Fund (DBAP) db X-trackers MSCI Europe Hedged Equity Fund (DBEU) db X-trackers MSCI United Kingdom Hedged Equity Fund (DBUK) Target date db X-trackers 2010 Target Date Fund (TDD) db X-trackers 2020 Target Date Fund (TDH) db X-trackers 2030 Target Date Fund (TDN) db X-trackers 2040 Target Date Fund (TDV) db X-trackers In Target Date Fund (TDX) Income db X-trackers Municipal Infrastructure Revenue Bond Fund (RVNU) db X-trackers Regulated Utilities Fund (UTLT) You may lose principal and these products will be successful only if significant losses are avoided. Carefully consider the funds investment objectives, risk factors, charges and expenses before investing. This and other information can be found in each fund prospectus, available at DBX-ETFS ( ). Read the prospectus carefully before investing PowerShares DB Commodities PowerShares DB Commodity Index Tracking Fund (DBC) PowerShares DB Agriculture Fund (DBA) PowerShares DB Base Metals Fund (DBB) PowerShares DB Energy Fund (DBE) PowerShares DB Oil Fund (DBO) PowerShares DB Silver Fund (DBS) PowerShares DB Precious Metals Fund (DBP) PowerShares DB Gold Fund (DGL) Currencies PowerShares DB G10 Currency Harvest Fund (DBV) PowerShares DB U.S. Dollar Index Bullish Fund (UUP) PowerShares DB U.S. Dollar Index Bearish Fund (UDN) Funds focusing on a single sector generally experience greater volatility. PowerShares DB funds invest directly in commodity or currency futures. You may lose principal and these products will be successful only if significant losses are avoided. PowerShares DB branded funds and the exchange-traded funds are not mutual funds or any other type of investment company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulation thereunder. Certain PowerShares DB ETFs are registered with the SEC under the Securities Act of 1933, as amended, and distributed by ALPS Distributors, Inc. Commodities and futures are volatile and are not suitable for all investors. The PowerShares DB branded funds must be preceded or accompanied by a prospectus. To view a prospectus, please click on the fund name above. 1. Our platform also includes 32 exchange-traded notes.

19 International Equity Allocation? International equity investing Even when investing in U.S. dollars, an international equity investor is exposed to fluctuations in local currencies of underlying holdings. Currency risk Typically, investors are unaware of this risk and how to control it. Country risk Typically, investors manage this through portfolio diversification. International equity investors are also exposed to the economic and/or political risks of individual countries. Hedged products are designed to mitigate the exposure to fluctuations between the value of the U.S. dollar and non-u.s. currencies while allowing pure exposure to equity markets. Diversification does not guarantee protection against losses.

20 MSCI EAFE Index Euro Austria Belgium Finland France Germany Ireland Italy Portugal Spain The Netherlands Swiss franc Switzerland Yen Japan Singapore dollar Singapore EUROPE 16 countries/6 currencies ASIA/PACIFIC 5 countries/5 currencies Middle East Australian dollar Australia British pound United Kingdom Hong Kong dollar Hong Kong Krona Sweden Krone Denmark Krone Norway New Zealand dollar New Zealand Shekel Israel 1 country/1 currency See slide 2 for index definitions.

21 Why hedge currency risk? Many investors aren t aware of the potentially damaging effects of currency risk. Currency moves: Are often sharp and unpredictable; Can reduce gains on international portfolios or turn them into losses; and Can add to portfolio volatility. Hedged products are designed to mitigate the exposure to fluctuations between the value of the U.S. dollar and non-u.s. currencies while allowing pure exposure to equity markets.

22 Currency Risk Misconceptions Currency risk is an inherent component of international equity investing and cannot be controlled in an efficient and cost-effective manner. Realities Through the use of currency-hedged equity ETFs, investors are able to strip out or dampen currency fluctuations from their international equity portfolios. Currency risk can be avoided or mitigated through the use of American Depositary Receipts (ADRs). ADRs are still exposed to currency risk despite being U.S. dollar denominated. Currency risk is not significant enough to warrant concern. Currency fluctuations are often significant and unpredictable driven by central bank activities, policy rhetoric, international trade flows and speculators. International investing is one dimensional. International equity investing subjects investors to two sources of risk: currency risk and country risk. An ADR is a certificate issued by banks representing shares in a foreign stock traded on a U.S. exchange.

23 Trends in the U.S. dollar Since 1968, the average U.S. dollar cycle has been approximately eight years. The current cycle with the U.S. Dollar Index nea all-time lows is in its 12th year. The dollar has been in a secular decline for more than a decade. With the average USD cycle at about eight years and the USD near all-time lows, that tide could shift at any time. U.S. Dollar Index (2/3/67 12/31/13) 10.8 Yrs Yrs. 7.5 Yrs. 9.4 Yrs % (+11.11% ann) 6.1 Yrs End of Bretton Woods Plaza Accord Sept Black Wednesday, Sept Sept. 11, % (+4.56% ann) Lehman collapse Sept % (-4.26% ann) Asian currency crisis % (-7.91% ann) Source: Deutsche Bank and Bloomberg as of 12/31/13. See slide 2 for index definitions. Past performance is no guarantee of future results. The numbers on the vertical axis represent index levels for the U.S. Dollar Index.

24 MSCI EAFE Index Currency contribution to return can be unpredictable ( ) Equity return Currency effect Potential return impact: Since 1983, a significant portion of international equity return has come from currency moves, which can be positive or negative. Source: Bloomberg as of 12/31/13. Past performance is no guarantee of future returns. See slide 2 for index definitions.

25 Currency Risk: Very Real & Volatile Ranking of major currency performances from best to worst performers since 1999 (% chg vs. USD) Best performers vs. USD Worst performers vs. USD JPY 10.8% AUD 7.3% CAD 5.8% KRW 5.7% MXN 4.7% NZD -0.5% SGD -0.9% GBP -2.2% ZAR -4.2% SEK -4.6% NOK -4.8% CHF -13.6% EUR -14.1% BRL -33.0% CHF -1.2% MXN -1.8% CAD -3.5% SGD -4.0% EUR -6.4% BRL -7.4% GBP -7.5% NOK -8.6% SEK -9.6% KRW -10.1% JPY -10.6% AUD -14.9% NZD -15.3% ZAR -19.0% MXN 5.3% NOK -2.0% GBP -2.8% CHF -3.0% KRW -3.8% EUR -5.5% CAD -5.9% NZD -6.0% SGD -6.1% AUD -8.6% SEK -9.9% JPY -13.2% BRL -15.6% ZAR -36.6% ZAR 40.1% NOK 29.1% NZD 25.8% SEK 20.4% CHF 20.1% EUR 17.9% JPY 10.9% GBP 10.8% KRW 10.7% AUD 9.9% SGD 6.5% CAD 1.2% MXN -11.7% BRL -34.7% AUD 34.0% ZAR 28.0% NZD 25.0% BRL 22.3% CAD 21.2% SEK 20.7% EUR 19.9% CHF 11.4% GBP 10.8% JPY 10.6% NOK 3.9% SGD 2.1% KRW -0.5% MXN -7.7% ZAR 18.3% KRW 15.2% NOK 9.8% NZD 9.7% CHF 9.0% BRL 8.9% SEK 8.1% CAD 7.8% EUR 7.7% GBP 7.5% JPY 4.8% AUD 4.0% SGD 4.0% MXN 0.9% BRL 13.6% MXN 4.8% CAD 3.5% KRW 2.7% SGD -1.8% NZD -4.9% AUD -6.2% NOK -9.9% GBP -10.3% ZAR -10.6% EUR -12.7% JPY -13.1% CHF -13.4% SEK -16.2% SEK 16.0% GBP 13.8% EUR 11.5% BRL 9.5% SGD 8.4% KRW 8.4% NOK 8.2% CHF 7.8% AUD 7.6% NZD 3.2% CAD -0.2% JPY -0.9% MXN -1.6% ZAR -9.8% BRL 20.0% CAD 16.9% NOK 14.7% AUD 11.0% EUR 10.6% NZD 8.9% CHF 7.5% JPY 6.9% SGD 6.4% SEK 5.9% ZAR 2.2% GBP 1.3% KRW -0.7% MXN -0.9% JPY 22.9% CHF 6.2% SGD 0.8% EUR -4.2% SEK -17.3% CAD -18.1% AUD -19.2% MXN -20.2% NOK -21.7% BRL -23.1% NZD -23.9% KRW -25.9% GBP -26.3% ZAR -27.5% BRL 32.7% ZAR 27.7% AUD 26.8% NZD 24.1% NOK 19.9% CAD 15.7% GBP 10.4% SEK 9.1% KRW 8.5% MXN 4.5% CHF 3.0% EUR 2.4% SGD 1.8% JPY -2.5% JPY 14.5% AUD 13.7% ZAR 12.0% CHF 10.9% SGD 9.6% NZD 7.6% SEK 6.7% MXN 5.7% CAD 5.5% BRL 5.0% KRW 3.9% NOK -0.5% GBP -3.4% EUR -6.6% JPY 5.5% AUD 0.2% NZD -0.1% GBP -0.4% CHF -0.4% SGD -1.1% CAD -2.2% SEK -2.6% NOK -2.6% EUR -3.2% KRW -3.3% BRL -10.9% MXN -11.4% ZAR -18.2% AUD = Australian dollar BRL = Brazilian real CAD = Canadian dollar CHF = Swiss franc EUR = Euro GBP = British pound JPY = Japanese yen KRW = South Korean won MXN= Mexican peso NOK = Norwegian krone NZD = New Zealand dollar SEK = Swedish krona SGD = Singapore dollar ZAR = South African rand KRW 9.0% MXN 8.4% NOK 7.4% NZD 6.4% SGD 6.2% SEK 6.0% GBP 4.6% CAD 2.7% CHF 2.4% EUR 1.9% AUD 1.6% ZAR -4.6% BRL -9.0% JPY -11.3% EUR 3.0% CHF 1.2% GBP 0.9% KRW 0.3% SEK -0.2% NZD -0.5% MXN -1.8% SGD -2.5% CAD -6.8% NOK -8.7% AUD -12.1% BRL -13.8% JPY -15.4% ZAR -18.1% Source: Deutsche Bank, EcoWin as of 12/31/13. Past performance is no guarantee of future returns.

26 Hedging Currency Risk: Returns Hedged indices represent equity returns excluding currency returns. Unhedged indices combine equity and currency returns. Since fund inception in June 2011, almost all five MSCI currency-hedged indexes have outperformed their unhedged counterparts. Annualized returns (as of 12/31/13) Hedged vs. unhedged returns (% as of 12/31/13) 1-year Since fund inception of 6/9/11 Hedged Un-hedged Hedged Un-hedged MSCI EAFE 26.67% 22.78% 12.01% 8.11% MSCI EM 0.59% -2.60% 0.55% 2.64% MSCI Brazil 9.01% 16.04% 5.37% 14.00% MSCI Japan 52.98% 27.16% 21.15% 9.89% MSCI Germany 18.26% 20.87% 5.42% 5.63% /8/11 12/8/11 6/8/12 12/8/12 6/8/13 12/8/13 MSCI EAFE U.S. Dollar Hedged Index MSCI EAFE Unhedged Index (1) Prior to 5/31/13, this fund was known as the db X-trackers MSCI Canada Hedged Equity Fund and had a different investment objective and followed a different investment objective. Source: Bloomberg as of 12/31/13. Performance is historical and does not guarantee future results. Index returns do not reflect fees or expenses and it is not possible to invest directly in an index. Current performance may differ from the results above. In the chart, for comparison purposes, we start each index with a value of 100. Lines show percentage movements in the index.

27 Hedging Currency Risk: Volatility Currency fluctuations have a significant impact on portfolio volatility. In general, hedged indices have had lower volatility than unhedged indices. Although unhedged investors have benefitted from higher returns over some time periods, they have also often experienced higher volatility. Annualized returns (as of 12/31/13) Hedged vs. unhedged volatility (% as of 12/31/13) 1-year Since fund inception of 6/9/11 Hedged Un-hedged Hedged Un-hedged MSCI EAFE 11.25% 12.21% 14.40% 18.28% MSCI EM 10.72% 13.33% 13.37% 17.67% MSCI Brazil 16.35% 21.14% 19.20% 25.84% MSCI Japan 23.74% 21.29% 20.04% 19.04% /8/11 12/8/11 6/8/12 12/8/12 6/8/13 12/8/13 MSCI Germany 11.99% 14.31% 14.85% 19.65% MSCI EAFE U.S. Dollar Hedged Index MSCI EAFE Unhedged Index Source: Bloomberg as of 12/31/13. Performance is historical and does not guarantee future results. It is not possible to invest directly in an index. Current performance may differ from the data shown.

28 Unhedged vs. Local Currency % % % 40 12/1/00 12/1/01 12/1/02 12/1/03 12/1/04 12/1/05 12/1/06 12/1/07 12/1/08 12/1/09 12/1/10 12/1/11 12/1/12 12/1/13 Unhedged Local USD Source: Deutsche Asset & Wealth Management as of 12/31/13. Past performance is no guarantee of future results. For comparison purposes, each entry begins with a value of 100.

29 db X-trackers Fund Inception date NYSE ticker Index ticker CUSIP db X-trackers MSCI EAFE Hedged Equity Fund 6/9/11 DBEF M0EFHUSD db X-trackers MSCI Europe Hedged Equity Fund 10/1/13 DBEU M0EUHUSD db X-trackers MSCI Germany Hedged Equity Fund 1 6/9/11 DBGR M0DEHUSD db X-trackers MSCI United Kingdom Hedged Equity Fund 10/1/13 DBUK M0UKHUSD db X-trackers MSCI Japan Hedged Equity Fund 6/9/11 DBJP M0JPHUSD db X-trackers MSCI Asia Pacific ex Japan Hedged Equity Fund 10/1/13 DBAP M0APJHUSD db X-trackers MSCI Emerging Markets Hedged Equity Fund 6/9/11 DBEM M0EMHUSD db X-trackers MSCI Brazil Hedged Equity Fund 6/9/11 DBBR M0BRHUSD )Prior to 5/31/13, this fund was known as the db X-trackers MSCI Canada Hedged Equity Fund and had a different investment objective and followed a different investment objective.

30 MSCI Equity Indices Overview MSCI s international indices in U.S. dollars (the unhedged version of the MSCI indices), which convert the local currencies into U.S. dollars, are some of MSCI s most widely followed U.S. indices, tracked by billions of dollars and numerous ETFs. The unhedged versions of the MSCI indices are: Free-float-adjusted, market-capitalization-weighted versions; and Designed to measure the foreign equity market performance where the equity prices used are the local prices on the primary exchange on which a security is traded and converted into U.S. dollars. The currency-hedged versions of the MSCI indices (the versions underlying the db X-trackers international currency-hedged equity funds: Were recently developed in order to create a version of the local currency indices available to U.S. investors; and Reflect the investment process of hedging the currency exposures inherent in the unhedged MSCI indices by investing in currency forwards. Both the currency-hedged and local currency versions are calculated using the same methodology as the corresponding parent MSCI index. Limited history Since the currency-hedged versions were recently developed (2/11), they have limited histories. Index histories are for illustrative purposes and do not represent actual fund performance. Index returns do not reflect fees, transaction costs or expenses. Indices are unmanaged and you cannot invest directly in an index. Past performance is no guarantee of future performance.

31 MSCI Currency-Hedged Indices International equity investments and FX forward contracts These indices combine international equity investments with FX forward contracts in an attempt to mitigate the impact on performance of the currency exposure of MSCI equity indices against a U.S. dollar-based investor. Month Start[i] start[i] Month Start[i+1] start[i+1] Time Time The index is long equity constituents. The index goes long a series of U.S. dollar onemonth forwards. 1 The notional value of the forwards represents the relative marketcap weights of the equities within the index. 2 The index does not adjust the hedge intramonth. Forward positions are rolled over using the new value of the index and any changes in the portfolio. Equity indices + hedge = Hedged indices The MSCI hedged indices provide benchmarks for funds that aim to help investors mitigate the effects of FX movements on their equity exposures and therefore have access solely to the equity returns. 3 (1) A forward currency contract is a negotiated agreement between the contracting parties to exchange a specified amount of currency at a specified future time at a specified rate. (2) An index where 50% of the underlying equity market cap is denominated in euros would buy U.S. dollar one-month forwards against euros in a notional amount equalling 50% of the index s equity market capitalization. (3) MSCI hedged indices do not adjust the hedge intramonth and therefore actual currency exposure may fluctuate. FX is the exchange of one currency for another, or the conversion of one currency into another currency.

32 Structure of the db X-trackers MSCI Equity indices Hedge Hedged indices Fund replication of index db-x MSCI currency-hedged ETFs Investment Investor (U.S. dollars) db-x provides ETFs based on the MSCI hedged indices. db-x s suite of exchange-traded funds provides investors with solutions that attempt to mitigate the FX component in their investments in MSCI international indices.

33 Thank You. Questions?

34 ETFs 403: Currencies & Currency Hedging Dennis Hudachek Moderator Senior ETF Specialist ETF.com Steven Dunn Panelist Vice President ETF Investment Specialist Deutsche Asset & Wealth Management