European Central Bank President Mario Draghi continues to talk the talk when it comes to fighting the strong euro.
At the International Monetary Fund’s spring meeting Saturday, Draghi said that added euro strength would warrant ECB action, which could include the central bank’s own version of quantitative easing, reports The Telegraph. However, Draghi refrained from identifying a specific target at which the euro needs to rise to trigger ECB easing, according to The Telegraph.
The CurrencyShares Euro Trust (NYSEArca: FXE) is up 5.6% in the past year. Draghi’s comments at the IMF meeting come just days after he made remarks, seen as his strongest to date, regarding the possibility of ECB easing.
Although the euro has been among the strongest developed market currencies since early 2013, the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ), which features hedge euro exposure, is higher by nearly 12%. The ETF is trading near all-time highs, set earlier this month, and with the ECB hinting that quantitative easing may not be too far off, the utility of HEDJ and its hedged euro component increase.[This ETF Soars Despite Euro’s Strength]
HEDJ is entirely focused on Eurozone economies with Germany, France and Spain, three of the region’s four largest economies, combining for nearly two-thirds of the ETF’s weight. WisdomTree reconfigured the ETF in the third quarter of 2012 from a multi-country, multi-currency fund to its current form, a move that combined with the resurgence in European equities has helped HEDJ rapidly grow its AUM tally. HEDJ recently topped $1 billion in assets under management. [Hedge Europe ETF Tops $1B in Assets]
Another option to consider is the db X-Trackers MSCI Europe Hedged Equity Fund (NYSEArca: DBEU), which is up 4.6% since its October 2013 debut. DBEU makes sense for a conservative investor that wants some Eurozone exposure without giving up exposure to the U.K. and Switzerland. Those countries combine for about 42% of DBEU’s weight, according to issuer data.
The ETF also allocates some of its weight Nordic countries. Although the euro and the British pound have been strong, DBEU has cobbled together a modestly positive year-to-date performance.
Among single-country, euro-hedged ETFs, Germany is currently the only country represented, but investors do have three funds to pick from: The db X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR), the WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE) and the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG). The iShares offering is the newest of the trio, having debuted in February.
While none of those ETFs have received the attention that the iShares MSCI Germany ETF (NYSEArca: EWG) gets, a large ECB easing could change that. First, Germany is an export-dependent economy and vulnerable to a strong euro. Second, hedged Germany ETFs have shown they are sensitive to signs of weakness in the common currency. For example, FXE is up just 0.1% in the past month, by DBGR has gained more than 3% over that time. [Different Ways to Access Germany]
db X-trackers MSCI Germany Hedged Equity Fund
