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]
DXGE and DBGR added over $28 million in new assets last month. Though both ETFs are well behind the $1.6 billion added to HEWG and the $2.1 billion added to EWG this year, asset growth on a percentage basis for the Deutsche Asset & Wealth Management and WisdomTree offerings has been exponential this year. [Running to Germany ETFs]
For example, DBGR, which celebrates its fourth anniversary next week, has added $192.5 million of its $233.7 million in assets under management this year. After starting 2015 with just over $17 million in assets, DXGE now has $341.3 million in assets. That ETF debuted in October 2013.
With the CurrencyShares Euro Currency Trust (NYSEArca: FXE) down 10% this year, investors have been right to prefer Germany hedged ETFs over EWG. EWG is up nearly 6%, but that is not even half the 16% returned by HEWG. DBGR is the leader among Germany ETFs this year with a gain of almost 17% while DXGE is higher by 15%.
iShares Currency Hedged MSCI Germany ETF
