Daily ETF Watch: ‘Strong Dollar’ Filings

April 14, 2015

With the U.S. dollar showing no signs of weakening, WisdomTree is continuing its practice of introducing funds that allow investors to benefit from a stronger greenback. The firm filed recently for two new ETFs—one that targets domestically focused U.S. companies and another that canvasses emerging markets for companies that generate a significant amount of business from exports to the U.S.

 

WisdomTree’s lineup of existing currency-hedged funds is a prime example of how the ETF provider has sought to allow investors to benefit from the strengthening dollar. It can lay claim to the two most successful funds in that space—the WisdomTree Europe Hedged Fund (HEDJ | B-58) and the WisdomTree Japan Hedged Fund (DXJ | B-69), which have $19.2 billion and $16.6 billion, respectively, in assets under management.

 

Both of those funds target export-focused countries and weight those holdings by dividends paid.

 

WisdomTree also allows investors to play the dollar with the WisdomTree U.S. Dollar Bullish Fund (USDU | 67), an actively managed ETF that takes a long position in the U.S. dollar versus a basket of foreign currencies.

 

The Proposed New Funds

The two funds outlined in the filing are unique in that they both specifically target companies that derive a significant portion of their revenues from the U.S. Should they launch, they are likely to be the first U.S.-listed ETFs to take this approach.

 

That means the WisdomTree Strong Dollar U.S. Equity Fund invests in U.S.-listed and -domiciled companies that generate at least 80 percent of their revenues in the U.S. The materials and energy sectors are not included in the selection universe, and rather than weighting by dividends or earnings, the underlying index uses a combination of market capitalization and positive correlation to the strength of the dollar.

 

Meanwhile, the WisdomTree Strong Dollar Emerging Markets Fund targets companies in 18 different emerging markets that generate at least 15 percent of their revenues from the U.S. Notably, it excludes companies falling into the energy, materials, financials, telecommunication services and utilities sectors, narrowing the selection universe to the consumer discretionary, consumer staples, industrials and information technology sectors. Individual sectors and countries are capped at 33 percent weights in the index.

 

It uses a similar weighting methodology to the U.S. fund.

 

The filings did not include expense ratios or tickers.

 

 

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