Daily ETF Watch: iShares’ Hedged ETFs

January 31, 2014

Is the firm too late to the currency-hedged equities ETF game?

iShares has updated paperwork detailing lower fees for its Japan MSCI-indexed currency-hedged fund, dubbed the iShares Currency Hedged MSCI Japan ETF (HEWJ), which will have an expense ratio of 0.48 percent—or $48 for every $10,000 invested—matching the segment-leading WisdomTree Japan Hedged Equity ETF (DXJ | B-48).

Currency-hedged ETFs have become all the rage in about the past year, as investors, for the first time since the tech bust, have a strengthening dollar—or a weakening yen or euro—to consider. Owning a fund like DXJ means returns won’t be hurt by a yen that has weakened by 10.9 percent in the past 12 months.

HEWJ’s new fees brings it into competition with the blockbuster $12.6 billion DXJ, which also has an expense ratio of 0.48 percent, and which gathered $9.7 billion last year, according to data compiled by ETF.com.

ETF.com analyst Howard Lee, who noted that DXJ has already captured the lion’s share of the Japan currency-hedged market, questions iShares’ timing of its launch. “I wonder if it’s too late to the game,” said Lee.

An Advantage For iShares?

iShares’ HEWJ will, as noted, have the same expense ratio as DXJ, but it may have an ace in the hole in terms of driving full costs of ownership downward. The new ETF will use as its underlying constituents shares of the iShares MSCI Japan ETF (EWJ | B-96).

In other words, it will use the liquidity of the $13.9 billion EWJ to help trim trading costs, dispensing with the need to source liquidity from the underlying equities of the actual firms the ETF owns.

DXJ’s current competitor, the $448.5 million db-X MSCI Japan Currency Hedged Fund (DBJP | D-51), has a slightly higher fee structure—0.50 percent, or $50 for every $10,000 invested. Investors added $316.5 million into the fund last year, according to data compiled by ETF.com.

Unlike the new iShares ETF, Deutsche Bank’s DBJP will be built from the underlying stocks.

To be clear, both Deutsche’s DBJP and iShares’ soon-to-be-launched HEWJ will own the same equities, but the iShares ETF will do it via another ETF, EWJ, while Deutsche’s fund will own underlying securities.

Investors and analysts, faced with a choice between virtually two identical funds, will be able to examine for themselves which of the two trades more cheaply and efficiently.

Filings

  • ETF Securities has filed regulatory paperwork seeking permission from regulators to launch actively managed ETFs, with the first proposed fund to be the ETFS Diversified Commodities Fund, which will invest primarily in commodity futures contracts and commodity-linked instruments through an ETFS Cayman subsidiary.

 

  • Barclays Bank has put into motion a series liquidity-enhancing maneuvers to draw more investor interest to its exchange-traded notes, some of which have relatively few assets under management.

 

  1. Specifically, Barclays is proposing to cut the fees on 22 ETNs from 0.75 percent, or $75 for every $10,000 invested, to 0.70 percent.
  2. Also, the bank is adding a callable feature to the ETNs, adding the right to split or reverse-split the notes, and to reduce the redemption unit size by the investor. 

 

 

 

 

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