Daily ETF Watch: New Europe Funds Planned

June 23, 2014

Two-euro focused equity ETFs are taking shape, including one that will borrow on the success of the $11 billion WisdomTree Japan Hedged Equity ETF (DXJ | B-56).

iShares has updated regulatory paperwork for its proposed iShares Currency Hedged MSCI EMU ETF (HEZU), which will give investors in eurozone countries currency protection by taking off the table exposure to fluctuations between the dollar and the euro.

Additionally, In addition, Source ETF Trust put into motion the proposed Source Euro Stoxx 50 ETF, which will track the Euro Stoxx 50 Index. The fund is designed to represent the performance of some of the largest companies across all components of the Euro Stoxx Total Market Index.

The proposed ETFs from iShares and Source are poised to take advantage of the European Central Bank’s recent announcement that it was putting together plans for a quantitative easing program, opening the spigot for local and foreign investors to put their assets to work in European markets.

iShares Currency-Hedged Fund

The proposed iShares currency-hedged strategy HEZU will track the MSCI EMU 100% Hedged to USD Index, an equity benchmark for the European Monetary Union countries with the currency risk of the securities included in the index hedged against the U.S. dollar on a monthly basis, according to the filing.

The fund, which will invest its assets in another iShares ETF, the iShares MSCI EMU ETF (EZU | A-65), has a proposed expense ratio of 0.51 percent, or $51 for every $10,000 invested.

The past success of DXJ—the fund gathered almost $10 billion in fresh assets last year—has resulted in fund sponsors like iShares trying to replicate DXJ’s past success.

But at the end of the day, Japan’s “Abenomics” initiatives aimed at revitalizing Japan’s economy may be the main reason for DXJ’s success, rather than some deeper appeal of currency-hedged strategies.

It appears investors may now be suffering from a case of currency-hedged overdose, or at least a lack of education about what those strategies can accomplish.

“I think investors are just getting bombarded with currency-hedged ETFs, but there’s very little understanding of exactly what those are,” said Dennis Hudachek, an ETF specialist at ETF.com, in a recent interview.

Source ETF Trust Filing

Countries covered in the index include Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain, according to the filing.

The proposed ticker and fee of the Source ETF weren’t included in the filing.

 

 

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