The comparison of the two ETFs, although not apples-to-apples, underscores the advantages of currency hedging in a strong dollar/weak euro environment. Over the past year, HEDJ has displayed an almost perfect inverse correlation to the CurrencyShares Euro Currency Trust (NYSEArca: FXE), with the former rising 17.7% as the latter slid 17%. Conversely, VGK, which is not a dedicated Eurozone ETF as HEDJ is, fell nearly 3% over the same 12-month period.
“When thinking about international equity exposure, it’s important to remember there are two components of returns: equity movement, plus the currency movement, relative to the U.S. dollar. So, if an investor does not have strong conviction on a currency’s future performance –the baseline allocation should not be 100% unhedged,” said WisdomTree Research Director Jeremy Schwartz in the statement.
With FXE down 5.7% this year, HEDJ entered Wednesday with a year-to-date gain of 11.5%, more than double VGK’s 2015 returns.
Combining the weak euro and the recently solid economic data out of Germany that helped propel the benchmark DAX to a record high, the near-term outlook for HEDJ and other currency hedged ETFs with significant Germany exposure appears bright. HEDJ allocates almost 26% of its weight to stocks in the Eurozone’s largest economy. [A Rush to Germany ETFs]
WisdomTree Europe Hedged Equity Fund
