A big theme of the last six months has been the strength of the U.S. dollar and the weakness of foreign currencies, especially the euro. Thus far this year, the euro has lost 7% of its value versus the U.S. dollar, 15% over the last six months and 18% over the last twelve.1
The euro started trending down as it became increasingly clear that the European Central Bank (ECB) would engage in a more aggressive monetary policy to combat deflationary trends in the eurozone.
Most of the eurozone stocks have been reacting quite well. Out of a universe of 457 stocks trading in euros, we found 444 that displayed a negative correlation over the last 52 weeks—meaning these stocks have reacted positively to the euro depreciation.2 The top 20 are:
Click for current holdings of the WisdomTree DEFA Index and WisdomTree Europe Hedged Equity Index.
What Do These Companies Have in Common? Most Are Exporters.
• The average revenue from within the eurozone for these 20 companies was 32%, and the average revenue from outside the eurozone was 68%. These companies benefit as their foreign sales are translated back to their home currency through a more favorable exchange rate, resulting in higher earnings.
• Most of these companies are seeing their prospects and competitiveness improve against foreign multinationals, especially those incorporated in the United States. As the euro weakens against the dollar, eurozone companies have greater pricing power across the globe compared to their U.S.-based competitors.
An Index to Reflect This Investment Theme