The WisdomTree Europe Hedged Equity Index (WTEHI) is well positioned to take advantage of this theme that eurozone-domiciled multinational exporters should benefit from a weak euro. WTEHI selects the exporters of Europe, based on a revenue screen, and then neutralizes the impact of currency fluctuations by hedging out the underlying currency exposure of the euro. This allows the Index to benefit from the potential local price appreciation without the negative impact of exchange rate declines that we have witnessed.
A number of companies mentioned in this top 20 list—companies such as Anheuser Busch InBev, L’Oreal, Bayer and Airbus—are among the Index’s top holdings.
The weighted average correlation of the stocks in WTEHI and the euro/dollar exchange rate is -0.42; and while the euro was down 7.4%, the Index was up 13.26%—showing the stocks in aggregate have been responding quite well to the ECB stimulus and the negative correlation.3
As the Federal Reserve starts to tighten its monetary policy, we may be in for a period of relative strength in the U.S. dollar that could persist over a longer cycle. The eurozone stocks with the strongest negative correlation to the euro are a hunting ground for those looking to find stocks that could potentially benefit from dollar strength. But WisdomTree believes it is important to invest in these eurozone companies with a currency hedge in place to protect from the potential falling euro.
1Source: Bloomberg, as of 2/26/15.
2Universe refers to those stocks within the WisdomTree DEFA Index incorporated in the eurozone and traded in euros.
3Sources: WisdomTree, Bloomberg, 12/31/14–2/26/15. Correlation is trailing 52-week.
Important Risks Related to this Article
Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Investments focused in Europe are increasing the impact of events and developments associated with the region, which can adversely affect performance.