Zooming in on WT Germany Hedged Equity vs. MSCI Germany: Additional outperformance came from strong stock selection within the Consumer Discretionary sector (average weight of more than 24%) and nearly double the weight to Germany’s strongest-performing sector in 2014, Utilities (more than 8% average weight). Only two sectors—Materials and Consumer Staples—hurt relative performance.4
Blending Currency Hedging with Unhedged Approaches?
We’ve been writing about currency hedging for some time, and we continue to advocate that, if an investor isn’t sure of the future direction of an international currency—in this case the euro—the baseline exposure should not be in a 100% unhedged approach. We’ve seen strong interest in currency hedging within the broader eurozone region, but those looking at the performance of German equities in particular have not yet embraced the hedged concept. Given European Central Bank policy and the trend of the euro, we believe it could be time to think about currency hedging of both broad, eurozone-related equities and German equities.
1European Central Bank, transcript of May 8, 2014, remarks after monetary policy meeting.
2Source: Bloomberg, for all euro exchange rates, as of specified dates.
3Source for sub-bullets: Bloomberg, with performance data from 12/31/13 to 7/25/14, and current sector weights as of 7/25/14.
4Source: Bloomberg, for period 12/31/13 to 7/25/14.
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations.