Observers and even casual followers of the exchange traded funds industry know at least one thing about 2015 inflows: Currency hedged ETFs are scorching hot.
Four such funds are among the year’s top 10 asset-gathering ETFs and the top two ETFs overall for new assets added, the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF), have brought in almost $24.7 billion in new assets this year.
Buoyed by the stronger dollar and diverging monetary policies between the U.S. and major developed markets, such as the Eurozone and Japan, currency hedged ETFs are garnering investor favor. However, there has not been a legitimate fee war within this asset class. That could soon change with ProShares launching its first currency hedged ETFs on Thursday and doing so with expense ratios that are well below the industry average. [Momentum for Currency Hedged ETFs]
Maryland-based ProShares introduced the ProShares Hedged FTSE Europe ETF (NYSEArca: HGEU) and the ProShares Hedged FTSE Japan ETF (NYSEArca: HGJP) today. Those ETFs carry expense ratios of 0.27% and 0.23%, respectively. The asset-weighted average expense ratio for currency hedged European equity ETFs was 0.56% and for currency hedged Japanese ETFs was 0.47%, according to ProShares.
HGEU tracks the “FTSE Developed Europe 100% Hedged to USD Index, a free-float-adjusted and market-cap-weighted index comprising large- and mid-cap European stocks. The index hedges against fluctuations between the value of the U.S. dollar and the currencies in which the stocks are denominated. Currencies represented include the euro, Swiss franc, British pound, Danish krone, Swedish krona and Norwegian krone,” according to ProShares.
At 0.23% per year, HGEU is far less expensive than the unhedged iShares Europe ETF (NYSEArca: IEV), which charges 0.6% per year. HGEU is 11 basis points per year pricier than the Vanguard FTSE Europe ETF (NYSEArca: VGK), but looking at VGK performance this year against diversified currency hedged rivals, HGEU’s slightly higher expense ratio will be worth it for investors if major developed Europe currencies continue weakening against the dollar. [A Fine Europe ETF Idea]
HGJP, the ProShares currency hedged Japan offering, enters a crowded field of yen hedged ETFs. However, the three established ETFs in this group charge either 0.48% or 0.45% per year, well above HGJP’s 0.23% annual fee.
“HGJP is designed to match the performance of the FTSE Japan 100% Hedged to USD Index, a free-float-adjusted and market-cap-weighted index comprising Japanese large- and mid-cap stocks,” according to ProShares.
Other new entrants to the currency hedged ETF fray have also sought to compete with entrenched rivals on costs. For example, the PowerShares Europe Currency Hedged Low Volatility Portfolio (NYSEArca: FXEU), which debuted in May, charges 0.25% per year. The SPDR EURO STOXX 50 Currency Hedged ETF (NYSEArca: HFEZ), which debuted earlier this month, charges 0.32%.
HGEU Top Country Weights
Table Courtesy: ProShares