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.
FXEU’s largest sector weight is 27.3% to financial services followed by nearly 20% to consumer staples names. At 14.1% and 13.7%, respectively, consumer discretionary and industrial names are FXEU’s other double-digit sector weights. Man SE is FXEU’s largest holding at a weight of 3.05% and only one of new ETF’s other holdings, Celesio AG, has a weight of over 2%.
“International investing is often accompanied by the risks of uncertain stock selection and foreign exchange fluctuations. While the Eurozone economy presents an important opportunity to global investors, changing economic, geopolitical and market dynamics have led many to re-think currency and volatility risk. Further enhancing our suite of low volatility solutions, FXEU allows participation in the European equity market’s potential upside while aiming to protect portfolios from potential market downturns, said PowerShares Managing Director Dan Draper in the statement.
FXEU Top Holdings
Table Courtesy: PowerShares