Investors have been piling into currency hedged exchange traded funds this year. That much is confirmed by the $12 billion that has flowed into the ETFs that damp currency risk and the fact that the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ), Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF) and the Deutsche X-trackers MSCI Japan Hedged Equity ETF (NYSEArca: DBJP) are each among the top 10 asset-gathering ETFs.
Some previously under the radar currency hedged ETFs are tacking on new assets at impressive clips as investors rush to hedged Europe ETFs. Those funds are currency hedged Germany ETFs. The unhedged iShares MSCI Germany ETF (NYSEArca: EWG), the largest Germany ETF, is unlikely to be dethroned as the benchmark U.S.-listed Germany ETF and has attracted over $1.2 billion in new assets this year, bringing its assets under management total to $5.86 billion. [Running to Germany ETFs]
However, EWG is not alone in the fast-growing Germany ETF category. The tumbling euro and the benefit that provides to export-driven Germany, the Eurozone’s largest economy, is increasing the appeal of ETFs such as the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG), Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) and the WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE).
HEWG, which overlays EWG with a EUR/USD hedge, is now home to almost $976 million in assets, nearly $799 million of which have arrived just this year. DXGE, the WisdomTree offering, has hauled in almost $102 million in new assets this year, bringing its AUM tally to $130.5 million. Said another way, DXGE has almost tripled in size in a matter of weeks.
DBGR, Deutsche’s Germany hedged offering, has seen 2015 inflows of almost $74 million, bringing the fund’s AUM total to nearly $122 million. That means if 2015 ended today, DBGR would have more than doubled in size in two consecutive years. [Germany ETFs Love ECB QE]
“The euro’s depreciation against the US dollar enhances the price competitiveness of products made in Germany. This benefits above all export-intensive sectors that sell a substantial volume of products outside the eurozone and/or have a large share of domestic value added. Some examples include the automotive, mechanical engineering, electrical engineering and chemical industries. Certain upstream industries also benefit indirectly, such as metals and plastics. The export-intensive pharmaceuticals industry is also a beneficiary of the weak euro,” said Deutsche Bank in a recent research note.
As other currency hedged ETFs have done, DBGR, DXGE and HEWG are crushing their non-hedged rivals, namely EWG. The average year-to-date return for the three Germany hedged ETFs is 20.2% compared to a 5.8% gain for EWG. [Currency Hedged ETF Craze Just Starting]
Importantly, Germany ETFs are not lacking for near-term catalysts.
“While we do not know what the immediate aftermath would involve, it is prudent to remember that the European Central Bank (ECB) could reduce the deposit rate even further than the current -0.20% at any time. You can debate the reasoning, timing or the probability all you want but the fact remains this ‘tail’ exists and somewhere that ‘risk’ premium needs to be discounted,” said Rareview Macro founder Neil Azous in a note out Wednesday.
DBGR and DXGE were two of just 12 ETFs that hit all-time highs Wednesday.
Deutsche X-trackers MSCI Germany Hedged Equity ETF
Tom Lydon’s clients own shares of HEDJ.