Equity: Italy - Total Market
Investors in Italian equity now have a choice among ETFs. The sole option for almost 20 years was EWI, a large, liquid and marketlike ETF from iShares. Then, in summer of 2015, 2
“EWI is an excellent option for unhedged currency exposure” currency-hedged funds launched, Deutsche Bank’s DBIT and iShares’ HEWI. The 2 funds effectively offer EWI with a currency hedge, aiming to neutralize euro movements for US investors using monthly settled currency forwards.
That leaves ETF investors with the choice to hedge or not. EWI is an excellent option if not. It trades with strong volume and tight spreads, and offers great coverage, albeit very concentrated in top names and financial stocks.
Those wishing to strip out the currency component of their returns (for better or worse) have 2 vehicles of differing construction and little track record. HEWI has the early edge on DBIT, with significant AUM uptake in a few short months. Still, trading volume is nowhere near that of venerable EWI (which HEWI holds in its basket in lieu of stocks).
DBIT is newer still, and hasn’t seen much investor interest in its first few weeks, but that’s hardly cause to panic. Still, one wonders if investors will provide the necessary AUM and liquidity to support both DBIT and HEWI since they literally track the same index. DBIT holds stocks in its basket rather than EWI, an interesting fact but, not a compelling reason to choose the fund. Neither is the tiny fee difference, which is likely to be overwhelmed by tracking differences. (Muddying the waters on tracking and holding costs: HEWI’s use of EWI in its baskets essentially makes it a fair-value NAV fund, which doesn’t hurt investors, but does confound tracking statistics.) That leaves trading costs and AUM the primary decision points between DBIT and HEWI. Check the latest data to see if HEWI still holds the edge in this regard. (Insight updated 02/27/17)
ETF.com Efficiency Insight
The 3 ETFs here have comparable fees, but that’s where the similarity ends. EWI plays the role of well-established first mover. The fund launched in 1996 and has a very hefty asset
“In contrast with EWIs long track record, HEWI and DBIT are quite new” base—it’s here to stay. While EWI charges a reasonable fee, the fund falls down on tracking. We see excessive variation in tracking, although much of it is to the upside.
In contrast with EWI’s long track record, HEWI and DBIT are quite new, having launched in July 2015 and August 2015, respectively. As such, their tracking record is unwritten. For HEWI, we expect poor tracking data that isn’t necessarily harmful to investors. The reason: HEWI holds EWI rather than a basket of stocks, so HEWI’s NAV will be out of sync with the stocks in the underlying index, distorting the track record. DBIT avoids this issue by holding stocks directly.
HEWI is off to a strong start in asset gathering; DBIT is not, but it’s still extremely new. (Insight updated 02/27/17)
ETF.com Tradability Insight
Among the 3 funds here, only EWI provides enough liquidity for active traders. The ETF enjoys robust daily volume and consistent tight spreads. Underlying liquidity looks strong
“EWI enjoys robust daily volume and consistent tight spreads” too.
HEWI benefits somewhat from EWI’s liquidity, since it literally holds EWI in its basket. However, HEWI is still very new (launched in July 2015), and spreads in early days are still unstable.
DBIT is even newer, and should be traded with care, as with any new fund. (Insight updated 02/27/17)
ETF.com Fit Insight
Investors in this space must decide whether to hedge their currency exposure. If not, they have an excellent portfolio in EWI, a market-cap-weighted ETF tracking an MSCI index that’s
“HEWI literally holds EWI in its basket, plus forward contracts” very similar to our benchmark. Marketlike exposure in Italy means a heavy dose of financial stocks and an extremely concentrated basket—the top 4 names make up about 40% of the portfolio. (The fund’s “25/50” MSCI index variant ensures that the portfolio’s concentration won’t run afoul of US diversification requirements.)
Those who like the EWI basket but also want to hedge out euro exposure against the dollar have 2 straightforward options. HEWI literally holds EWI in its basket, plus forward contracts. The fund is very new, however, so you won’t find a performance record prior to the July 2015 launch. DBIT will also fit the bill—it tracks the same index as HEWI, and differs only in its more traditional execution by holding stocks rather than an ETF. DBIT is newer still. (Insight updated 02/27/17)