Good Timing for This New ETF
July 5th at 9:30am by Tom Lydon
Looking to capitalize on the success of the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), ETF issuer WisdomTree (NasdaqGM: WETF) again tested the currency hedged waters last week with the introduction of two ETFs.
One of those new ETFs is the WisdomTree Japan Hedged SmallCap Equity Fund (NYSEArca: DXJS), small-cap equivalent of the wildly popular DXJ. However, it may be WisdomTree’s other new ETF that is in the right place at the right time, something not all new funds can lay claim to. [DXJ Gets a Small-Cap Cousin]
That other new ETF is the WisdomTree U.K. Hedged Equity Fund (NYSEArca: DXPS), the first equity-based ETF that offers a pure hedge against fluctuations in the British pound/U.S. dollar currency pair. Not all new ETFs should be treated like a hot a stock IPO, meaning investors do not need to rush in on the first day or week of trading. In fact, some investors like to wait for new ETFs to gain decent volume and assets under management tallies before jumping in. [Global ETFs Minus the Currency Risk]
The Bank of England might be telling investors it is time to give DXPS a look despite the fund being just a week old. On Thursday, the central bank said economic data over the past few months was consistent with the recovery set out by the bank in its May inflation report, but warned that the “significant upward movement” in bond yields would weigh on the outlook for growth, according to Investing.com.
What was seen as the BoE opening the door to more monetary easing was confirmed by Goldman Sachs, which said “More unconventional easing is likely in the U.K.,” reports Katy Barnato for CNBC.
Speculation BoE will engage in further stimulus measures sent the pound tumbling to its lowest levels since June against the greenback. As DXJ has shown investors, a falling currency can certainly work in favor of ETFs that hold stocks, particularly of those ETFs hedge currency risk. [Hedged Japan ETF Soars With Nikkei]
DXPS, which charges 0.48% per year, competes directly with the $2.1 billion, 17-year old iShares MSCI United Kingdom ETF (NYSEArca: EWU). EWU, which has a 30-day SEC yield of almost 3.1%, is down 2.3% this year.
Just as DXJ does with the yen, DXPS holds short sterling positions and the latter is home to 140 stocks. The new ETF allocates almost 20% of its weight to staples names and 17% each to financials and energy stocks. Materials and health care stocks also receive double-digit weights. No holding is weighted above 5.3% in DXPS. Top-10 holdings include Vodafone (NYSE: VOD), Royal Dutch Shell (NYSE: RDS-A) and BP (NYSE: BP).
DXPS is up 1.2% since its debut, but Friday is the first day U.S. markets are open since the BoE meeting and this could be the first time investors get to see how the ETF reacts on news that the pound may be in for more downside.
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of DXJ.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.