WisdomTree’s euro hedged ETF offers less risky exposure to Europe

Sep 4th, 2012 | By | Category: Equities

WisdomTree, a US-based exchange-traded fund (ETF) provider, has altered the mandate of its NYSE-listed WisdomTree International Hedged Equity ETF (HEDJ) to focus on a portfolio of European export-oriented dividend-paying equities while hedging movements in the euro/dollar exchange rate. The fund has been renamed the WisdomTree Europe Hedged Equity ETF (HEDJ) to reflect the new investment objective.

WisdomTree’s euro hedged exchange-traded fund (ETF) offers less risky exposure to Europe, WisdomTree Europe Hedged Equity Fund (HEDJ)

The WisdomTree Europe Hedged Equity ETF (HEDJ) provides a less risky route to European equities for dollar-based investors.

Previously, the fund had a wider remit, providing exposure to equities across Europe, Australasia and the Far East, while neutralising the multiple currency movements in these regions versus the dollar.

Commenting on the development, Luciano Siracusano, WisdomTree’s Chief Investment Strategist, said: “Concerns over the future of the euro may cause investors to re-evaluate their exposure to Europe, though current valuations for European stocks remain compelling based on historically low P/E ratios and high dividend yield differentials compared to the US.

“In fact, even in a declining euro environment, we believe many global companies headquartered in Europe will continue to be competitive and have the potential to generate substantial profits. By providing exposure to European stocks while neutralising the downside for dollar-based investors that would be inflicted by a weakening euro, we believe HEDJ can present a precise and thoughtful alternative to un-hedged portfolios of European stocks.”

Siracusano is not alone in seeing potential in European equities. Neil Dwane, CIO Europe at Allianz Global Investors, recently said that European equities look “very cheap, very under-owned and very unloved.” In his view, this represents a great opportunity for investors willing to invest over the medium to long term. [See Europe ETFs: ‘European equities offer a magical trinity of opportunity’]

Similarly, Stephen Macklow-Smith, a senior portfolio manager in JP Morgan’s European Equity Team, said that while European equities are unloved and out of favour “European companies are positioned to benefit from global growth” and that “valuations are cheap, providing a potentially attractive entry point for long-term investors.” [See European equity ETFs offer long-term value]

WisdomTree’s Siracusano believes a currency-hedged solution can placate investors nervous about currency instability: “For investors concerned about the impact that growing sovereign debt could have on the value of foreign currencies, we believe both the WisdomTree Japan Hedged Equity ETF (DXJ) and HEDJ provide unique ways to own Japanese or European equities in the ETF structure, while mitigating potentially unwanted currency risk.” [See Currency-hedged ETFs prove their worth as investors seek safe havens]

For dollar-based investors looking for a substitute to the original WisdomTree International Hedged Equity ETF, the NYSE-listed db-X MSCI EAFE Currency-Hedged Equity ETF (DBEF) does a broadly similar job. This fund tracks the MSCI EAFE US Dollar Hedged Index, which provides exposure to equity securities in developed international stock markets, while at the same time mitigating exposure to fluctuations between the value of the dollar and non-US currencies.

UK/sterling-based investors looking for currency-hedged exposure to European equities are not so fortunate, as no such ETF currently exists. However, there are a number of GBP-hedged ETFs for investors concerned more generally about the impact of currency exposures. iShares, for example, offers a suite of London-listed currency-hedged funds, including the iShares MSCI World Monthly GBP Hedged ETF (IGWD), the iShares S&P 500 Monthly GBP Hedged ETF (IGUS) and iShares MSCI World Monthly GBP Hedged ETF (IGWD), while Amundi and db X-trackers also offer a limited selection of GBP-hedged funds.

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