WisdomTree Investments, Inc. (NASDAQGS: WETF) is the seventh-largest U.S. issuer of ETFs and still the lone publicly traded pure play ETF sponsor.
Shares of New York-based WisdomTree have tumbled this year, but that downside could be a case of too much too fast and investors not acknowledging some potential catalysts for the stock.
At least one sell-side research firm seems to agree and is bullish on shares of WisdomTree heading into next year. The stock could benefit from ongoing strength in the U.S. dollar, particularly if the Federal Reserve boosts interest rates in December.
In a note out Tuesday, Macro Risk Advisors put a “buy” rating on WisdomTree with a $12 price target, implying some decent upside from Tuesday’s close of just under $11.
“WETF appears setup to outperform into year-end. Through Friday, Nov 25, net flows have been positive for 2 consecutive weeks (+$125M/week), a first this year vs. the norm of weekly inflows last year. One key driver has been the reversal of flows within DXJ (Japan Hedged Equity ETF), which has gone from outflows to inflows (details below). Over these 2 weeks, WETF stock is up 29%, while the group is up 12%,” according to part of the Macro Risk Advisors note posted by Teresa Rivas of Barron’s.
With the yen tumbling and the dollar surging, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) is higher by 7.3% over the past month. The currency-hedged ETFs outperform non-hedged funds when the local currency depreciates against the U.S. dollar, but these funds have been underperforming as the JPY surged against the USD this year.
Market observers argue that the greenback will maintain its momentum as more traders anticipate the Federal Reserve to hike interest rates 25 basis points in December.
As markets anticipate a higher chance of a Federal Reserve rate hike, the yen currency has weakened against the U.S. dollar and bolstered export-heavy Japanese markets and country-specific exchange traded funds.
“Demand for DXJ will continue to improve as the Japanese Yen carry trade likely has legs. Since the election, USD has strengthened roughly 8% vs JPY. We have seen this playbook before and it is a strong tailwind for DXJ, which should see flows continue to improve,” according to the Macro Risk Advisors seen in Barron’s.