Currency Hedged ETFs are so hot, They’ve Gone Leveraged

With the dollar strong and major developed market currencies tumbling, it is not a secret that currency hedged exchange traded funds are one of this year’s hottest corners of the ETF universe.

Led by the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF), four of this year’s top 10 asset-gathering ETFs are currency hedged funds. The other two are the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) and the iShares Currency Hedged MSCI EAFE ETF (NYSEArca: HEFA). [Momentum for Currency Hedged ETFs]

The almost $24 billion in assets added by HEDJ and DBEF more than the five next best asset-gathering ETFs combined. So perhaps it is time to apply leverage to currency hedged and test investors’ appetite for some added risk and returns with these ultra-popular funds.

Direxion, the second-largest issuer of inverse and leveraged ETFs, is testing that notion with today’s introduction of the Direxion Daily MSCI Europe Currency Hedged Bull 2x Shares (NYSEArca: HEGE) and the Direxion Daily MSCI Japan Currency Hedged Bull 2x Shares (NYSEArca: HEGJ).

The Direxion Daily MSCI Japan Currency Hedged Bull 2x Shares will attempt to deliver double the daily returns of the MSCI Japan US Dollar Hedged Index, making the new Direxion offering the double-leveraged currency hedged equivalent of the iShares MSCI Japan ETF (NYSEArca: EWJ). EWJ is the largest U.S.-listed Japan ETF. [ETFs to Capture a Stronger Japanese Economy]

That index allocates 22.4% of its weight to consumer discretionary names, and about 19.4% to financial services and industrial stocks, according to Direxion data. Top 10 holdings include staples of traditional Japan ETFs, such as Toyota (NYSE: TM), Honda (NYSE: HMC) and Canon.