With speculation rising that the European Central Bank will unveil a Federal Reserve-style bond buying program in the first half of 2015, investors are flocking to an exchange traded fund that hedges fluctuations in the EUR/USD currency pair while also providing long exposure to Eurozone stocks.
New York-based WisdomTree (NasdaqGS: WETF) said today its WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) has topped $5 billion in assets under management, continuing one of the most torrid paces of asset gathering among all exchange traded products this year.
“As the Fed begins to tighten its policy stance next year and the ECB continues to discuss further monetary easing, the euro is poised to weaken further versus the U.S. dollar. Yet for investors in the Euro area, this accommodation can provide support to risk assets like equities,” said WisdomTree Research Director Jeremy Schwartz in a statement.
With the CurrencyShares Euro Currency Trust (NYSEArca: FXE) down 11% this year and the euro ranking as one of the worst-performing developed market currencies, HEDJ has benefited in significant fashion. Not only has the ETF gathered new assets at a breathtaking pace, but the fund has highlighted the advantages of currency hedging in a strong dollar environment. [Euro Hedged ETF Back in the Spotlight]
HEDJ is up 4% this year while the Vanguard FTSE Europe ETF (NYSEArca: VGK) and the iShares MSCI EMU ETF (NYSEArca: EZU) are down 9% and 10%, respectively.
“One of the most important market trends in 2014 has been the rise of the U.S. dollar and the weakening of the euro. We believe many investors are utilizing hedged equity strategies to isolate international equity markets without adding the layer of euro exchange rate risk. We believe the exchange rate risk to be a critical factor influencing returns and think investors should concentrate on the local equity opportunities in these regions without the currency volatility,” added Schwartz.
Investors have seized on those themes with HEDJ, making the ETF this year’s equivalent of the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP), which saw inflows spike in 2013 as the yen plunged.
As of Dec. 16, HEDJ had added almost $4.5 billion in new assets this year, a total exceeded by just one other ex-U.S. developed markets ETF and just six ETFs overall. Highlighting HEDJ’s rapid growth along with investors’ willingness to bet on quantitative easing from the ECB is this factoid: The ETF topped $1 billion in assets in early April and now has over $5 billion in AUM. [Hedged Europe ETF Tops $1B in AUM]
That is a stellar run for an ETF that just over two years ago was not focused on the Eurozone, nor was it on many investors’ radars. 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 euro weakness has helped HEDJ rapidly grow its AUM tally.
Countries receiving double-digit weights in HEDJ are Germany, France, Spain and the Netherlands. That quartet combines for over 85% of the ETF’s weight. The ETF’s largest sector weights are consumer staples, industrials, consumer discretionary and financial services.
“As of October 31, 2014 The WisdomTree Europe Hedged Equity Fund (HEDJ) was ranked the number one fund, by MorningStar, out of 109 Europe-focused open-ended (OE) mutual funds and exchange-traded funds (ETFs) over the past year based on total return.1 HEDJ is alone at the top, in our view illustrating the impact that a depreciating euro has had on unhedged investment options within this category. Given the policies being discussed and employed by the European Central Bank (ECB), it is hard to imagine a stronger euro compared to the U.S. dollar in the near future,” according to a research note published by WisdomTree earlier this week.
WisdomTree Europe Hedged Equity Fund
