Daily ETF Watch: More Hedged Funds Planned

March 18, 2015

These days, after the success of the WisdomTree Europe Hedged Equity ETF (HEDJ | B-61) and the WisdomTree Japan Hedged Equity ETF (DXJ | B-70)—both of which have more than $15 billion in assets—it looks like WisdomTree is doubling down on the currency-hedging concept.

 

The firm rolled out the WisdomTree Europe Hedged SmallCap Equity Fund (EUSC) earlier this month, and also recently filed for a global ex-U.S. currency-hedged ETF. A pair of new filings outlines further plans for similar funds.

 

The WisdomTree DEFA Hedged Equity Fund and the WisdomTree International Hedged SmallCap Dividend Fund are both dividend-weighted and cover developed non-U.S. markets.

 

The dividend-weighted DEFA fund will target industrialized countries, excluding Canada and the United States. It pulls its components from 15 European countries, five Asia-Pacific countries and Israel. The unhedged WisdomTree DEFA Fund (DWM | B-92) is a $633 million fund—not a blockbuster, but definitely among WisdomTree’s more successful funds.

 

Meanwhile, the small-cap fund tracks an index that is constructed by removing the top 300 components from the WisdomTree DEFA Index in terms of size, and then selecting the bottom 25 percent of the remaining stocks. That means there’s some overlap with products tied to the DEFA index. The WisdomTree International SmallCap Dividend Fund (DLS | C-70) has more than $880 million in assets.

 

Currency hedging has been embraced by WisdomTree, iShares and Deutsche Bank, and increasingly in the wake of the Japan-focused DXJ’s runaway success. It’s an appealing strategy when the U.S. dollar is strengthening against other developed-market currencies. If you can appropriately hedge away the currency discrepancy when the dollar is surging, you can protect local-market returns.

 

The filings didn’t include expense ratios, tickers or the exchanges where the funds will have their primary listings.

 

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