After the Federal Reserve announced the start of higher interest rates, the weaker euro currency, along with the improved outlook for European exporters, is supporting currency-hedged Europe exchange traded funds.
Euro-currency hedged ETFs, which diminish the negative effects of a stronger dollar or weaker euro currency, outpaced other Europe ETFs as the falling euro helped push the hedged version slightly ahead. On Thursday, the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ) was up 0.1%, iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) rose 0.4% and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) gained 0.3%. [International ETFs to Diversify Ahead]
Meanwhile, the CurrencyShares Euro Currency Trust (NYSEArca: FXE) dipped 1.0% Thursday as the euro fell 0.9% to $1.0809.
In contrast, the non-hedged iShares MSCI EMU ETF (NYSEArca: EZU) was down 0.5% on Thursday while the SPDR EURO STOXX 50 (NYSEArca: FEZ) was 0.4% lower. The two non-hedged ETFs both focus on Eurozone countries.
Exporters and financial stocks led European markets after the Fed announced its first rate hike in almost a decade, Bloomberg reports.
The U.S. dollar was appreciating against a basket of currencies Thursday after the Fed announcement. The tighter monetary policy would diminish the supply of U.S. dollars floating around in the economy and help the greenback appreciate against foreign currencies. [Dollar ETFs Can Still Beat Euro Rivals]
Consequently, the stronger dollar and weaker euro were seen as a boon for export-heavy industries across Europe and the currency-hedged Europe ETFs that include heavy tilts toward large exporters. For instance, HEDJ’s underlying index specifically targets companies that generate the majority of revenue from overseas markets.
“The fund’s index screens for companies that derive at least 50% of their revenue from countries outside Europe and weights constituents by annual cash dividends paid,” according to Morningstar analyst Patricia Oey. “On a fundamental level, a falling euro benefits the large-cap, export-oriented consumer and industrials firms that are well-represented in this fund. Most of the companies in this fund are domiciled in Germany, France, Spain, and the Netherlands.”
WisdomTree Europe Hedged Equity Fund
For more information on the Eurozone, visit our Europe category.
Max Chen contributed to this article.