Sterling Hedged ETFs Finally Acting Right

Amid speculation the Bank of England will join the Reserve Bank of New Zealand in developed market central bank interest rate hike game, the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) has spent a significant portion of 2014 as one of the better-performing currency exchange traded funds.

That bullishness has ebbed dramatically as the pound is mired in a seven-week losing streak, its worst such skid since 2008. Since the start of July, FXB has tumbled 3.4% as currency traders’ enthusiasm for rate hike from BOE has waned.

“Sterling’s world-beating rally came to an end even as minutes of the BOE’s August meeting showed two policy makers voted for a rate increase this month. Forward contracts based on the sterling overnight interbank average, or Sonia, show investors have pushed back bets on a 25 basis-point increase in borrowing costs to May from as early as February last week,” reports Lucy Meakin for Bloomberg.

Sterling’s snapped rally has recently ignited shares of the WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS). An easy and accurate way of viewing DXPS is that is to the pound/dollar currency what the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) are to the dollar/yen and euro/dollar currency pairs. [Don’t Forget These Currency Hedged ETFs]

So as U.K. equities rallied along side the pound earlier this year DXPS and the rival Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK) lagged. With the pound ailing, that trend has reversed, sending DXPS higher by 3.5% over the past two weeks.

DXPS has its perks beyond the obvious of getting a lift from pound weakness. Those advantages include the ETF being reflective of the U.K.’s status as one of the top developed market dividend destinations outside of the U.S. The ETF’s almost 4.7% distribution yield speaks to that fact. [The Case for British Dividends]