Daily ETF Watch: SSgA Plans Hedged ETFs

May 26, 2015

 

The latest filing from State Street Global Advisors indicates the firm is planning to jump into the currency-hedged international equity space with both feet. In March, the firm filed for the eurozone-focused SPDR Euro Stoxx 50 Currency Hedged ETF, and the latest paperwork outlines its plans to launch currency hedged funds based on a pan-European index as well as an international dividend index from S&P Dow Jones Indices.

 

The all-Europe hedged fund, the SPDR Stoxx Europe 50 Currency Hedged ETF, will track an index that covers some of the largest blue-chip stocks in all of Europe, again not just in the eurozone. The fund itself can invest in an existing unhedged version of itself, the SPDR Stoxx Europe 50 ETF (FEU | A-90) and apply a hedge with foreign currency forward contracts  on top of that ETF.

 

Meanwhile, the SPDR S&P International Dividend Currency Hedged ETF will be able to do the same with the existing SPDR S&P International Dividend ETF (DWX | C-65) ($1.5 billion). The index comprises 100 of the stocks paying the highest dividends outside of the U.S., including both emerging and developed markets, and weights them by dividend yield.

 

FEZ, FEU and DWX are some of SSgA’s most popular international ETFs. FEZ is the largest with $5.1 billion in assets under management, while DWX and FEU have $1.5 billion and $303.2 million, respectively.

 

DWX, in particular, uses a dividend-based methodology that would appeal to today’s income-hungry investors. Add in the currency hedge, and you have a product that captures two of the biggest current trends in ETF investing.

 

The filing did not include tickers or expense ratios.

 

 

Global X Yieldco ETF Nears
New filings from Global X suggest that it will be launching its first yieldco ETF. The Global X YieldCo Index ETF (YLCO) will come with an expense ratio of 0.65 percent and roll out on the Nasdaq Stock Exchange.

 

Yieldcos—prevalent in the alternative energy sector—that are included in the fund will be publicly listed individual securities that are spun off from a parent company.

 

It says in the filing that a yieldco’s operations tend to represent the parent company’s reliable cash flows from established businesses, separate from more speculative and higher-risk areas of operation. The assets owned by a yieldco tend to be in the area of renewable energy infrastructure, especially wind and solar energy.

 

Income-hungry investors may find yieldcos alluring, because, like master limited partnerships (MLPs) and real estate investment trusts (REITs), they pay high dividends. The funds’ prospectus describes yieldcos as “dividend growth-oriented,” and notes that the funds will invest in existing yieldcos as well as companies that are planning to spin off a yieldco via an initial public offering.

 

The underlying index for the fund requires components have a market capitalization of at least $500 million and a three-month average daily value traded of $1 million, with the requirements loosened if there are fewer than 20 companies meeting the criteria. The prospectus noted that as of mid-May, the index had nine components listed on U.S. stock exchanges, as well as six listed in London, four listed in Canada and one listed in Spain.

 

In terms of weighting, the top five components in terms of market capitalization are assigned weights of 11 percent, 10 percent , 9 percent, 8 percent and 7 percent, with all other component weights capped at 4.75 percent.

 

Given the Notice of Effectiveness filing and the completeness of the fund’s prospectus, the fund’s launch is likely to launch soon if not imminently. When it does, it will be the first yieldco-focused ETF. 

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