On the latest ETF 360, VettaFi Senior Industry Analyst Kirsten Chang was joined by Head of Xtrackers Wealth, US onshore for DWS, Aram Babikian. DWS manages over one trillion AUM across a variety of asset classes. Xtrackers is the ETF division for DWS. “DWS has about $365 billion across the entire Xtrackers platform globally,” Babikian shared.
Investors Looking for Geopolitical Risk Solutions
Political tensions and risk have been rising throughout the year. Russia continues its invasion of Ukraine, tensions are high in the Middle East, and trade wars are upending decades of codified dynamics. “In terms of what’s available in the market place right now of how you can potentially de-risk your portfolio for geopolitics, there are very few solutions,” said Babikian.
Investors looking to de-risk have had to look to gold or bitcoin. Some have even sought out other, more esoteric asset classes. Staying invested in equities while also de-risking has proven a challenge, which is why Xtrackers partnered with Solactive and JH Whitney to create the Xtrackers US National Critical Technology ETF (CRTC).
How to De-Risk Your Portfolio, According to Xtrackers
To give investors an opportunity to stay in equities while de-risking, Xtrackers leaned on an algorithm developed by JH Whitney. “We have a geostrategic risk rating, that looks at companies and their entanglement risk with adversarial nations like China, Russia, Iran, or North Korea and de-risks your portfolio by taking those companies out of your portfolio on a dynamic basis,” said Babikian. As a result, if these companies can improve their situation they can get back into the portfolio. “We saw this product do quite well in the beginning of the year when geopolitical tensions were rising quite a bit.”
International Equity a Strong Suit for Xtrackers
Pivoting to international equity, Chang asked Babikian why there has been a growing investor look at international equity opportunities. Accordingly, he pointed to the new US administration. “The current policies in place are creating a very unique scenario where its forcing the international community to be a lot more self reliant,” he said.
DWS, as a global firm, has been well-positioned to be a gateway to Europe for investors. As Europe looks to become more self reliant, opportunities abound. “You’re seeing a seismic shift,” Babikian said. Germany’s recent stimulus package is the biggest one in Europe since 1945.
Is It a Hedge Case?
DWS has two ETFs that focus on international. One that’s currency-hedged and one that isn’t. Historically, the currency hedge was useful for investors. Babikian noted though that, “right now though, there’s a scenario where you’re seeing a weaker dollar.” This means each fund has a use case, and Babikian shared that many advisors are doing a 50-50 split between the Xtrackers MSCI EAFE Hedged Equity ETF (DBEF) and the unhedged Xtrackers MSCI EAFE High Dividend Yield Equity ETF (HDEF).
AI Poised to Increase Efficiency in Many Industries
The Xtrackers Artificial Intellegence and Big Data ETF (XIAX) is a unique AI product. Babikian said that Xtrackers by DWS isn’t just looking at companies that manufacture chips. “We’re not looking at just companies that are driving AI innovation or architects of AI, but also ones that are going to be beneficiaries of AI.” With many in the industry thinking AI will be a mass efficiency tool across multiple industries. “The companies that embrace [AI tools] early will be among the greatest beneficiaries.”
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