No exchange traded fund has added more new assets this year than the $15.6 billion added by the WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) and only four ETFs, including HEDJ, have taken in more new assets than the nearly $5 billion added by the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ).
Those are impressive statistics, but they are not enough to keep at least one sell-side analyst from ratcheting down his view on WisdomTree (NasdaqGS: WETF), the only publicly traded pure play issuer of ETFs.
On Tuesday Citigroup analyst William Katz cut his rating on the stock all the way to “sell” from “buy”; Katz also slashed his 12-month price forecast for the stock by half, all the way down to $15 from $30, reports Chris Dieterich for Barron’s.
New York-based WisdomTree is the fifth-largest U.S. ETF issuer and had $60.7 billion in assets under management as of Aug. 20. HEDJ and DXK combined for $35.7 billion in assets as of Aug. 25, which along with WisdomTree’s status as one of the largest issuers of currency hedged ETFs, implies some vulnerability to dollar retrenchment. [Momentum for Currency Hedged ETFs]
The Federal Reserve ended quantitative easing last year, but the Bank of Japan is highly unlikely to follow suit while the European Central Bank has unveiled its QE regime. Other developed market central banks, including the Reserve Bank of Australia, are cutting rates.
However, the issue for currency hedged ETFs, at least in the here and now, is speculation that the dollar rally is going to cool because the Federal Reserve will not raise interest rates next month as so many investors previously expected.
“Like many asset managers, WETF’s stock is down sharply [this month], however four factors shift our thinking. First, we believe the flow story is deteriorating and lead indicators are softening rapidly. Second, there is building margin pressures given rapid AUM decline and elevated spending, on top of adverse fee rate shift. Third, we believe the multiple could compress. Fourth, management selling has stepped up,” said Citi’s Katz in an excerpt of his note posted by Barron’s.
Shares of WisdomTree have tumbled 21.4% over the past month, but those losses could be erased if the dollar rallies.
WisdomTree
