Up till now, WisdomTree Investments (WETF) remained the name of the game in the ETF space of currency-hedged equities. Though, the distinguished issuer has more intense competition. Even though this field include the presence of ETF bellwether iShares of BlackRock (BLK), the same popular arena has been forayed into by a new big issuer State Street (STT) after the launch of SPDR EURO STOXX 50 Currency Hedged ETF (HFEZ), its first currency-hedged product.
Focusing on HFEZ
The present ETF is SPDR EURO STOXX 50 ETF (FEZ), a currency-hedged version that conforms to the EURO STOXX 50 Hedged USD Index. The index is what measures the performance of some quality-hedged biggest companies throughout the 20 EURO STOXX Supersector Indexes components.
With 50 securities held in the “basket”, we say the index is adequately distributed across components without a firm make-up for over 5.01% of total assets. The top positions of the index are occupied by three holdings; Bayer AG, Sanofi, and Total SA. The EFT majors mostly on financial sector, hence, the dedication of approximately one-fifth of its assets to the sector, while other sectors are given moderate exposure.
With regards to allocations of countries, the top countries are France (35.30%) and Germany (32.09%), followed by Spain, Italy, the Netherlands, Belgium and Finland with 12.75%, 7.67%, 7.58%, 3.64%, and 0.97% respectively. The annual net expense ratio of the fund is 0.32%.
Investors should be aware of FEZ’s popularity, with total accumulated assets of $4.89 billion and in only 48 hours of the launch of HFEZ, it has amassed assets worth approximately $4 million.
How exactly does it fit in a portfolio?
The developed world has its monetary policies in dual routes, with the Unites States economy nearly tightening while majority of other nations are easing. Importantly, it is worthy to mention the QE program launch by the ECB in the Euro zone as well as the “rock-bottom” interest rates. The Unites States economy was beaten by the Euro zone with a 0.4% growth rate in the first quarter according to stimulus measures.
Even though this reveals the call for the European ETFs, there is a possibility that investors will be affected by the influence the adverse currency translation has on their foreign assets. This is as a result of the Euro zone stock prices being inflated by the QE and the weighing of the same on euro value. This is proven true by greenback’s potential strength, particularly during the hike in interest rates by the Fed at a time in 2015.
As a result, a currency hedging technique has been adopted by the product as a way of warding off the slowness of the euro currency and protect the returns of investors from currency risk, and also ensure a timely launch of the product.
Competition
Due to the presence of some very popular ETFs in the space, such as WisdomTree Europe Hedged Equity Fund (HEDJ) with $19.8 billion, Deutsche X Trackers MSCI Europe Hedged Equity Fund (DBEU) with $2.6 billion and Currency Hedged MSCI EMU ETF (HEZU) with $1.37 billion, the hedging technique is not a new idea in the ETF space of Europe equities any more. With FEZ’s high level of acceptance among other investors, it is expected that HFEZ, its currency-hedged version, gets the attention of enough investors.