Like Currency Hedging With Less Volatility? A New ETF Delivers Both

Four of the top 10 asset-gathering exchange traded funds this year are currency hedged products. Last month, currency hedged ETFs added $10 billion in new assets, bringing the year-to-date total to just over $34 billion.

Indeed, it is clear investors have embraced ETFs that strip out currency, but investors have also remained loyal to low volatility ETFs. With that in mind, the newly minted PowerShares Europe Currency Hedged Low Volatility Portfolio (NYSEArca: FXEU) fits the bill as a “best of both worlds, right place right time ETF.”

The PowerShares Europe Currency Hedged Low Volatility Portfolio tracks the Eurozone Low Volatility USD Hedged Index aiming “to provide investors with European equity exposure while helping to mitigate unexpected equity market developments and potential currency risk,” according to a statement from PowerShares.

FXEU’s 80 holdings are the members of the S&P Eurozone BMI Index to form the S&P Eurozone Low Volatility USD Hedged Index that displayed the lowest volatility over the trailing 12-months. A similar methodology serves as the backstop for the wildly successful PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV). [Surprises in Low Vol ETFs]

FXEU’s holdings “are weighted by the inverse of their volatility so that the stocks with the lowest volatility receive the greatest weights. To further improve the risk mitigation of this low volatility strategy, the portfolio is then 100 percent currency hedged to the U.S. dollar using rolling one-month forward contracts that are adjusted monthly,” according to PowerShares. [More to Come for Currency Hedged ETFs]

The S&P Eurozone Low Volatility USD Hedged Index allocates 33.7% of its weight to Germany, the Eurozone’s second-largest economy. France, the Eurozone’s second-largest economy, is 26.8% of the index’s weight. The Netherlands and Spain are the only other members of the index to command double-digit allocations.