Daily ETF Watch: WisdomTree Debuts HEDJ Jr.

March 04, 2015

WisdomTree is building on the success it has had with the $12 billion WisdomTree Europe Hedged Equity ETF (HEDJ | B-51) with today’s launch of a small-cap version of the fund.

 

The WisdomTree Europe Hedged SmallCap Equity Fund (EUSC), like HEDJ, focuses on stocks that trade in euros and are headquartered in Europe. However, its underlying index also requires that components fall within the bottom 10 percent of the WisdomTree DEFA Index in terms of market capitalization. The prospectus noted that as of Feb. 6, the index’s components had market capitalizations falling between $106 million and $5.5 billion.

 

As with HEDJ, EUSC’s currency hedge is effected through forward-currency contracts. The new fund also charges the same expense ratio as its large-cap complement, 0.58 percent.

 

However, unlike HEDJ, EUSC does not screen for export-oriented companies. HEDJ requires that all of its holdings generate at least half of their revenues from non-European countries.

 

In 2013, the firm launched a small-cap version of the $14 billion WisdomTree Japan Hedged Equity ETF (DXJ | B-57), the fund that basically was the first successful currency-hedged ETF. The WisdomTree Japan Hedged SmallCap Equity Fund (DXJS | C-49) currently has roughly $96 million in AUM, nowhere near the success of DXJ, but still a respectable asset level. 

 

iShares Muni Fund Nears

BlackRock’s iShares is set to launch an actively managed short-term municipal bond fund on Thursday on the BATS exchange.

 

iShares, the world’s largest exchange-traded fund company, plans to launch an active short-term municipal debt ETF on March 5, making it the latest addition in a crowding field of products.

 

The iShares Short Maturity Municipal Bond ETF (MEAR) will target investment-grade municipal securities with no more than five years to maturity. The fund will come with a net expense ratio of 0.25 percent, or $25 for each $10,000 invested, after a fee waiver.

 

As noted, the short-term municipal bond ETF field is a crowded one, with four different funds already well established in the space. The largest, the index-based SPDR Nuveen Barclays Short Term Municipal Bond ETF (SHM | B-69), launched in 2007 and has more than $2.5 billion in assets.

 

Also, iShares already has its own passively managed fund in the space, the iShares Short-Term National AMT-Free Muni Bond ETF (SUB | B-50), which has roughly $890 million in assets. It launched in 2008.

 

The only actively managed fund is the PIMCO Short Term Municipal Bond ETF (SMMU | C-49). It targets a maximum weighted average maturity of three years. SMMU launched in 2010 and has less than $60 million in assets. PIMCO’s fund has an expense ratio of 35 basis points. SUB, like the new iShares fund going live tomorrow, has an expense ratio of 25 basis points.

 

With interest rates expected to rise later this year, duration risk is a growing concern for investors, and the short end of the yield curve is drawing investor dollars. For investors looking to take advantage of the tax-free nature of muni bonds while keeping their interest-rate risk under control, a low-priced active ETF with low duration may be just the ticket.

 

Russell Announces Rebalance Schedule

Separately, Russell Indexes this week laid out the schedule for its annual index reconstitution.

 

On June 12, Russell will release the preliminary membership lists, including additions and deletions, on its “Recon Central” website, with updated lists posted on June 19 and June 26, the company said in a press release.

 

On June 26, a Friday, the reconstitution will take place after the market close. The reconstituted indexes will be live as of the market open on Monday, June 29.

 

Also effective along with the reconstitution, the index provider will allow the inclusion of multiple share classes in the U.S. indexes should they fulfill requirements regarding size, liquidity and float.

 

Among the changes taking place with regard to the developing market indexes, the firm’s frontier indexes will incorporate a liquidity screen for determining eligibility.

 

Cote d’Ivoire and Senegal will also become eligible for inclusion in the frontier index family, whereas before they had been excluded entirely from the Russell indexes. Meanwhile, Morocco will be demoted from the emerging markets classification to frontier markets.

 

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