Investors Prefer Euro Hedged Germany ETFs

In the latest sign that single-country currency hedged exchange traded funds are growing in popularity, the iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG) hauled in more than $133 million in new assets last month while its unhedged counterpart, the iShares MSCI Germany ETF (NYSEArca: EWG), the largest Germany ETF, shed $115.1 million.

“Investors poured $1.6 billion in the hedged German ETF this year, bringing its market value to almost $1.8 billion. Even though it’s a lot smaller than the $6.9 billion of the iShares MSCI Germany ETF, its growth has outpaced the unprotected version by eight times in 2015,” reports Sofia Horta E Costa for Bloomberg.

Some institutional investors have been attracted to HEWG’s use of non-deliverable forwards (NDFs).

“NDFs can be efficient, flexible hedging instruments that directly source liquidity from traditional deliverable currency forwards, while typically maintaining tight pricing and comparable spreads to deliverable forwards,” according to iShares.

With its heavy tilt toward large, multi-national companies, the DAX index is benefiting from a depreciating euro currency. A weaker euro would help support export growth and potentially generate greater revenue from overseas operations for the multi-nationals.

EWG’s may outflows were the first from the ETF this year. While investors are departing the unhedged Germany ETF, they are warming to HEWG and rivals, such as the Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) and the WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE). [Explosive Growth for Single-Country ETFs]