WisdomTree targets global, European and EM exposures with latest ETFs

Nov 2nd, 2015 | By | Category: Equities

WisdomTree, a leading provider of exchange-traded funds, has rolled out three new ETFs targeting equity exposure in outside the US. The new offerings are WidomTree’s first listings with BATS Global Markets, the Kansas-headquartered exchange.

WisdomTree’s multi-launch – New ETFs targeting global, European and EM exposures

Jeremy Schwartz, WisdomTree Director of Research. (File image)

The WisdomTree Europe Local Recovery Fund (EZR) invests in European companies which derive more than 50% of their revenue from European customers. As such, the fund is well placed to benefit from an economic recovery and increased buying power of the region.

One of WisdomTree’s more popular European-focused ETFs, the WisdomTree Europe Hedged Equity Fund (HEDJ), provides access to firm’s who derive a minimum of 50% of their revenue from outside the continent. Constituents of the fund generally benefit from a weakening euro which improves the competitive advantage of their products in international markets. As such it is more closely linked to a global economic recovery rather than a European one. European exporters will undoubtedly play an important role in the continent’s prospects but investors seeking a more rounded profile of European exposure within their portfolios will likely choose to incorporate EZR as well.

Jeremy Schwartz, WisdomTree Director of Research, commented: “Currently, the sector leading growth in the European economy is local consumption and local demand, not global trade. EZR provides more direct exposure to these European focused businesses. Moreover, typically cyclical sectors (industrials, materials, consumer discretionary, information technology, financials and energy) have exhibited stronger performance during economic recoveries than their defensive counterparts. EZR is designed with this in mind, including exposure to the six sectors most tied to the cyclical growth potential of the European economy.”

“WisdomTree also employs a unique and innovative weighting process – tied to an economic factor exposure – that tilts weight towards companies that are more sensitive to European economic prospects.”

The indicator employed by the fund’s methodology is the European Commission’s Economic Sentiment Indicator. This forward-looking gauge of the continent’s health is calculated from business and consumer surveys representing the industrial confidence indicator (40%), service confidence indicator (30%), consumer confidence indicator (20%) and construction confidence and retail trade indicators (5% each). Each potential constituent of the fund is weighted according to its historic correlation with this measure. Firm’s exhibiting higher correlations will be granted larger weights, thereby more closely tying the profile of the fund with the economic recovery of the entire European continent.

As of 30 October 2015, the fund had country exposure gravitating towards France (26.4%), Germany (25.1%), Italy (15.7%) and Spain (9.4%). The main sectors into which the ETF was investing included financials (32.4%), industrials (24.6%), consumer discretionary (21.4%) and materials (8.9%). There are currently 210 holdings within the fund of which the largest exposure is to Total SA (2.1%).

The fund’s gross expense ratio of 0.58% and net expense ratio of 0.48% reflect a contractual waiver of 0.10% through to November 2017.

The WisdomTree Strong Dollar Emerging Markets Equity Fund (EMSD) is designed to provide exposure to emerging market companies that would benefit from a strengthening dollar. The fund avoids commodity-centric sectors, which see the cost of their raw materials increase with a rising dollar; and also excludes firms that issue considerable debt denominated in US dollars as financing costs increase when the dollar appreciates, negatively affecting equity performance. Emerging market sectors that typically issue the most US-denominated debt include financials, telecommunications, and utilities. The fund overweight firms which derive more revenue from exports to the US, more closely aligning the performance of the fund with that of the US dollar.

As such the fund is likely to grant more exposure to emerging market technology and consumer oriented sectors, particularly those that have significant revenue from US buyers.

“Knowing that emerging markets currencies can be both volatile and expensive to hedge, WisdomTree strived to create an alternative solution that would focus on stock selection and weighting, and have the potential to perform relatively well in a strong US dollar environment. The innovative weighting methodology in EMSD is tied to an economic factor exposure—in this case the US dollar—that tilts weight towards emerging market companies relatively better positioned for a strengthening US dollar environment,” said Schwartz.

As of 30 October 2015, investments were primarily made in Taiwan (36.1%) and South Korea (36.0%), with lesser exposure to India (9.8%), Brazil (6.7%) and Mexico (6.1%). The fund was leaning towards the information technology (36.0%), consumer discretionary (24.7%), industrials (17.8%) and healthcare (8.7%) sectors. The fund was composed of 130 constituents of which the top three holdings were Samsung (6.2%), the IPATH MSCI India Index ETN (4.6%), and Infosys (3.8%).

The Fund’s net expense ratio is 0.58%.

The WisdomTree Global ex-US Hedged Real Estate Fund (HDRW) offers investors the opportunity to participate in the high dividend paying profiles of real estate companies based outside the US, while mitigating exposure to currency movements against the US dollar.

Schwartz said, “In the current low interest rate environment, companies focused on real estate activities have the potential to provide attractive income streams and differentiated exposure, relative to broader equities. HDRW offers exposure to these dividend-paying companies, sensitive to real estate activities in both developed and emerging markets, while neutralizing the impact of currency movements against the US dollar.”

The Index which the fund tracks, the WisdomTree Global ex-US Hedged Real Estate Index, is comprised of real estate companies with market capitalisations greater than $1bn. Constituents are weighted according to their historic dividend levels, maximising the income generating potential of the fund while also maintaining appropriate diversification. The Index includes the following types of companies: real estate operating companies; real estate development companies; and diversified real estate investment trusts.

As of 30 October 2015, the fund had major country investments in Hong Kong (24.7%), Australia (11.7%), China (11.0%), France (8.6%) and Singapore (7.9%). There were 178 holdings within the fund of which the main exposures were to Sun Hung Kai Properties (3.8%) and EverGrande Real Estate Group (3.8%).

The fund’s gross expense ratio of 0.58% and net expense ratio of 0.43% reflect a contractual waiver of 0.15% through to August 2017.

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