Hedge Developed Market Growth With These ETFs

January 06, 2017

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Gary Stringer, president and chief investment officer of Memphis, Tennessee-based Stringer Asset Management.

As the pace of broad leading economic indicators have picked up, we have become more optimistic in our outlook for markets globally.

For example, improvements can be seen in the OECD Composite of Leading Economic Indicators (LEIs) for OECD (Organisation for Economic Co-operation and Development) plus the six major nonmember countries. The OECD plus nonmember economies cover all OECD countries plus the six nonmember economies: Brazil, China, India, Indonesia, Russia and South Africa.

The recent uptick in LEIs is led by ongoing stability in the U.S., a firming of China’s economic growth, as well as an end to the recession in Russia and recent depression in Brazil. Adding support to this environment, we think accelerating U.S. growth will increase demand for imports, pulling economic growth higher in other countries.



Central Bank Support

In addition to these positive LEI trends, we continue to find supportive policies coming from foreign central banks. For example, the recent European Central Bank (ECB) announcement extending its bond purchases is quite dovish. In fact, the ECB stated that asset purchases would continue through December 2017 or beyond, if necessary.

Given the political uncertainties and other macroeconomic factors facing Europe, we expect accommodative policy from the ECB for years to come.


Rising LEIs and foreign central bank stimulus can create catalysts that unlock appreciation potential in foreign developed markets, which continue to trade at discounts to their own history as well as compared to U.S. valuations.

As a result, we are finding attractive investment opportunities in developed markets like Europe and Japan.



Meanwhile, the U.S. Federal Reserve may believe that fiscal stimulus will increase inflationary pressures as the new presidential administration’s well-publicized fiscal stimulus plans come at a time when the Fed views the economy at near full employment.

As a result of inflationary pressures coming from fiscal stimulus and increased global economic growth, we anticipate the Fed will raise interest rates more quickly and more persistently than the market expects over the next 12-18 months.

These rising short-term interest rates could push the value of the U.S. dollar higher to levels not seen since the early 2000s.

Therefore, investors may wish to hedge the foreign currency risk in developed economies through options such as the WisdomTree Europe Hedged Equity Fund (HEDJ), the iShares Currency Hedged MSCI Eurozone (HEZU), the WisdomTree Japan Hedged Equity (DXJ) or the iShares Currency Hedged MSCI Japan ETF (HEWJ).

At the time of writing, Stringer Asset Management (SAM) held HEDJ and DXJ among its universe of ETFs included in its suite of ETF Portfolios. SAM is a Memphis, Tennessee third-party investment manager and ETF strategist. Contact SAM at 901-800-2956 or at [email protected]. For a complete list of relevant disclosures, please click here.


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