Refining its currency-hedged exchange traded fund suite, WisdomTree is working on a smart-beta currency adjustment strategy that could minimize losses and maximize gains as foreign currencies fluctuate.
Wisdomtree has filed with Securities and Exchange Commission for four separate “Dynamic” currency-hedged ETFs, including:
- WisdomTree Dynamic Currency Hedged Europe Equity Fund
- WisdomTree Dynamic Currency Hedged Japan Equity Fund
- WisdomTree Dynamic Currency Hedged International Equity Fund
- WisdomTree Dynamic Currency Hedged International SmallCap Equity Fund
No tickers or expense ratios were listed.
The four proposed currency-hedged ETFs will provide exposure to foreign equities while hedging against currency exposure to fluctuations between the foreign currencies and the U.S. dollar. [4 Things You Need To Know About Currency Hedging]
When investing in overseas assets, investors are exposed to currency risks. If the foreign currency-denominated security depreciates against the U.S. dollar, U.S. investors will see a lower U.S.-denominated return. However, a currency-hedged position may underperform a non-hedged investment if the foreign currency appreciates against the USD. [Critical Currency Consideration]
Consequently, WisdomTree is working on a group of so-called Dynamic currency-hedged ETFs that could help minimize losses when foreign currencies weaken and maximize gains when the foreign currencies strengthen.
Specifically, the four Dynamic Currency Hedged Equity Funds will hedge currency fluctuations in the relative value of the foreign currency against the USD, ranging from 0% to 100% hedge. The underlying index will use quantitative signals to determine the hedge ratio based on interest rate differentials, valuations and relative price momentum of the foreign currencies compared to the USD.
“This approach is designed to limit losses related to currency as the euro depreciates against the U.S. dollar while participating in gains related to currency when the euro appreciates against the U.S. dollar, thereby seeking to have the Fund benefit from such currency movements while reducing the volatility associated with currency returns,” according to the filings.
Moreover, index components are selected and weighted by dividend payments, so companies with larger dividends will have a greater index weight.
For more information on currency hedged strategies, visit our currency hedged ETFs category.
Max Chen contributed to this article.