For a significant portion of 2016, the euro vexed investors, rising in spite of the European Central Bank's (ECB) best efforts
to weaken the common currency. Over that span, the Guggenheim CurrencyShares Euro Trust (NYSE: FXE) was, surprisingly to some, one of the better-performing currency exchange-traded
funds.
That has gone by the wayside and with a recent slide, FXE is down half a percent year-to-date. What is good news for euro bears
is also good news for currency hedged ETFs, a once hot group that has been maligned for much of this year as the dollar has
disappointed. Well, here it is late October and the WisdomTree Europe Hedged Eq Fund (NYSE: HEDJ) is up 4.5 percent year-to-date.
Significance
That is significant for a number of reasons, not the least of which is the fact that in arguably quiet fashion, HEDJ is once
again throttling its unhedged counterparts. For example, the largest unhedged eurozone ETF and the Vanguard FTSE Europe ETF
(NYSE: VGK), which is not a dedicated eurozone fund, are off an
average of one percent year-to-date and those ETFs have been an average of 150 basis points more volatile than HEDJ this year.
Related Link: ETFs Delivering
Dividend Growth The Right Way
With the euro faltering, HEDJ's tilt toward exporters is again paying dividends for investors.
“It’s also worth noting that many have been pleasantly surprised that markets have recovered from the lows they hit a few days
after the surprise Brexit result. Since that point, the WisdomTree Europe Hedged Equity Index is up more than 13 percent, also
outperforming these other benchmarks (MSCI EMU Index: up 12.3 percent; Euro Stoxx 50 Index: up 11.6 percent),” said WisdomTree
in a
recent note.
Methodology
Data suggest HEDJ's methodology works. Over the past three years, not only has HEDJ been slightly less volatile than the MSCI
EMU Index, the WisdomTree ETF has outperformed that index by an almost 20-to-1 margin. That serves as a reminder of the unintended
consequences of investors not acknowledging currency risk.
Additionally, as has been previously noted, HEDJ allocates just 13.1 percent of its weight to financial services stocks. That
makes the sector the ETF's fourth-largest sector exposure, an advantage at a time when global investors are increasingly concerned
about the strength of banks throughout some major eurozone economies.
“Deutsche Bank, currently much maligned in the media, does not qualify as an exporter. Unicredit, Intesa Sanpaolo — these are
also not exporters. In Europe at present, Financials are under stress, but for the most part companies in this sector do most of
their business domestically, thereby not qualifying for the WisdomTree Europe Hedged Equity Index,” added WisdomTree.
Full ratings
data available on Benzinga Pro.
Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win
a $20 Amazon gift card!
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.