• On a sector basis, the three greatest sector exposures are also all to the sectors most leveraged5 to economic growth: Industrials (23%), Consumer Discretionary (15.5%) and Financials (18%). If the ECB monetary stimulus does increase euro-area growth and lending, these sectors could stand to benefit.
An Important New Tool in the European Equity Toolkit
The WisdomTree Europe Hedged SmallCap Equity Fund (EUSC) was designed to track the performance of the WisdomTree Europe Hedged SmallCap Equity Index after costs, fees and expenses. For those thinking about European equities, EUSC represents the first available option for investors to invest in euro-area small caps without layering on the additional euro currency risk.
In future blog posts, we’ll look at the valuations of euro-area small caps and how they compare to the U.S. small caps. In short, as of February 10, 2015, higher dividends are available in the euro area, and the stocks are selling at lower valuation multiples.6 We believe that by hedging the euro and focusing on dividend payers in the euro area, investors can find an attractive risk and return profile in euro-area small caps.
1Refers to the MSCI EMU Local Currency Index universe, which returned 8.61% over the period from 12/31/14 to 2/10/15, as compared to the S&P 500 Index, which returned 0.67%, and the MSCI Emerging Markets Index, which returned 1.19%.
2Sources: WisdomTree, Standard & Poor’s, with data as of 2/10/15.
3Refers to the WisdomTree Europed Hedged Equity Index universe, which, as part of its selection criteria, requires that every constituent generate at least 50% of revenue from outside of Europe.
4Peripheral European countries: Portugal, Ireland, Italy, Greece and Spain
5Leveraged: In this context, leverage does not refer to the level of debt but rather the potential sensitivity to reacting to a change in economic conditions.
6Source: Bloomberg, with data as of 2/10/15. Universe of euro-area small caps is MSCI EMU Small Cap Index. Universe of U.S. small caps is Russell 2000 Index.
Important Risks Related to this Article
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. This Fund focuses its investments in Europe, thereby increasing the impact of events and developments associated with the region, which can adversely affect performance. The securities of small-capitalization companies generally trade in lower volumes and are subject to greater and more unpredictable price changes than larger-capitalization stocks or the stock market as a whole.
The Fund uses various strategies to attempt to minimize the impact of changes in the value of the euro against the U.S. dollar, and these strategies may not be successful. Derivative investments can be volatile, and these investments may be less liquid than other securities, and more sensitive to the effects of varied economic conditions.
The Fund invests in the securities included in, or representative of, its Index regardless of their investment merit, and the Fund does not attempt to outperform its Index or take defensive positions in declining markets. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.
Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.