It’s been a long time coming, but WisdomTree’s new emerging markets currency exchange traded fund (ETF) is finally here.
Investors have been eagerly awaiting WisdomTree’s newest fund for some time, but a global recession happened along the way. Luciano Siracusano, chief investment strategist at WisdomTree, says challenged markets were the culprit in the holdup.
“When Lehman [Brothers] blew up, there was a tremendous pullback of anything risky, and it pushed up the value of the dollar,” he says. “International emerging currencies very much retrenched in that period.”
But now that investors who have been sitting in cash are once again venturing out into the markets in search of products that have a potentially higher yield and now that sentiment about the U.S. dollar has shifted, it seems to be about the right time to launch a fund that gives investors what they’re seeking.
The WisdomTree Dreyfus Emerging Currency Fund (CEW) is a basket of 11 emerging market currencies, giving exposure through the use of forward contracts.
The fund is equally weighted and rebalances quarterly. It’s considered actively managed in the sense that there’s no underlying index. Each currency will begin the quarter with a 9% weighting. From there, some will appreciate, others will depreciate and at the start of the next quarter, they’ll reset again back to the 9% weighting.
The currencies within the fund are:
- Brazilian real
- Mexican peso
- Chilean peso
- Israel shekel
- Turkish lira
- Polish zloty
- Chinese yuan
- South Korean won
- Taiwan dollar
- Indian rupee
- South African rand
“We put a premium on liquidity and there was a deep enough pool to make the fund work, so that’s how we settled on those currencies,” Jeremy Schwartz, WisdomTree’s director of research, notes. He also points out that they wanted to be sure there was no overlap between currencies with a high correlation to one another.
One advantage of owning a basket of emerging market currencies, Siracusano says, is that investors don’t have to take on the equity risk of owning emerging market stocks. “Currencies have a different profile from a volatility perspective.”
This fund is the first of its kind. The closest ETF to it is the PowerShares DB G10 Currency Harvest (DBV), which is a basket of currencies from developed nations.
Siracusano notes that emerging markets have moved in a more positive direction in recent months.
“They’re all pretty much heading in the right direction. We think they’re starting to head back to the fundamentals. Places like China and India have had GDP growth, while economies in the developed world have contracted.”
CEW has a 0.55% expense ratio.