Germany Euro Hedged ETFs Merit More Love

February 26, 2015

Currency-hedged ETFs are now all the rage. Sparked in 2013 by an Abenomics-induced plunging yen in Japan, the frenzy kicked into hyperdrive after the ECB’s stimulus announcement on Jan. 22.

Since the advent of Abenomics in late 2012, the WisdomTree Japan Hedged Equity ETF (DXJ | B-57) has ballooned into a $13.7 billion fund. On the European front, since Jan. 1, 2014, the WisdomTree Europe Hedged Equity ETF (HEDJ | B-51) has seen $9.9 billion in inflows and is now an $11 billion fund.

Yet it seems investors have forgotten to hedge out their currency risk in Germany, Europe’s largest economy and the brightest star within the eurozone.

Where’s The Love For Currency-Hedged Germany?

Currently, the unhedged iShares MSCI Germany ETF (EWG | A-96) is the undisputed leader in the space, with $5.8 billion in assets, accounting for 85 percent of the $6.9 billion in total assets in the segment.

In comparison, the three currency-hedged Germany ETFs have few assets. This is especially surprising being that Germany, like Japan, is an exporting powerhouse and largely benefits from a weaker euro.

Take a look at asset levels in hedged-Germany ETFs compared with EWG:

 

Ticker Fund  Assets ($M) 2015 YTD Flows ($M)
EWG iShares MSCI Germany *5,830 *988
HEWG iShares Currency Hedged MSCI Germany 845 667
DBGR Deutsche X-trackers MSCI Germany Hedged Equity 75 30
DXGE WisdomTree Germany Hedged Equity 63 40

*HEWG's assets and flows get incorporated into EWG

 

Remember that EWG investors are fully exposed to movements in the euro, so the fund has taken a big hit compared with its currency-hedged peers over the past year due to the plunging euro. EWG is the black line in the chart below.

 

Chart courtesy of StockCharts.com

 

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