With European equities depressed after their prolonged financial crisis, WisdomTree has restructured one of its exchange traded funds to offer exposure to potentially undervalued stocks in the region while hedging the currency risk of owning the euro.
According to a press release, the original WisdomTree International Hedged Equity Fund (NYSEArca: HEDJ) was restructured from its broad international strategy to a more focused European-oriented portfolio and renamed to the WisdomTree Europe Hedged Equity Fund.
The ETF has a 0.58% expense ratio and a 3.99% 30-day SEC yield.
The new HEDJ hedges the euro currency. If the euro continues to depreciate, the region’s exporters would stand to benefit, but the same companies would be negatively affected if the euro begins to strengthen.
The euro currency has strengthened from $0.83 in October 2000 to a high of $1.60 – currently, the exchange rate is at around $1.26.
According to a WisodomTree research note, European equities have outperformed during declining currency periods since 1987. Specifically, the MSCI EMU Index in local currency performed 12.8% annualized during down currency trends since Dec. 31, 1987, compared to the 7.8% returns across both up and down trends since 1987.
“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,” Luciano Siracusano, WisdomTree Chief Investment Strategist, said in the press release. “By providing exposure to European stocks while neutralizing the downside for U.S. 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.”