Deja Vu 2015
In 2015, we saw funds like HEDJ become household names as the euro tumbled. HEDJ was, in fact, the most popular fund that year, raking in $13.8 billion in assets. But so far in 2016, it has faced $4.47 billion in net redemptions, according to FactSet data.
HEDJ isn’t the only example of an ETF that could be sitting pretty for a resurgence of investor demand—and performance—if the dollar does in fact switch gears and rallies further in the wake of Brexit. Here are a few of the other key players in this segment:
- The Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU | B-64) has $3 billion in total assets, and so far in 2016, it has seen some $550 million in net outflows. DBEU holds the U.K. as its single biggest country weighting, at about 30% of the portfolio.
- The two-year-old $1.7 billion iShares Currency Hedged MSCI Eurozone ETF (HEZU | D-39) has now lost $731 million in net redemptions this year. France and Germany are the fund’s biggest country allocations.
- The low-volatility take on the segment, the $313 million PowerShares Europe Currency Hedged Low Volatility Portfolio (FXEU | D-31), picks 80 of the least volatile total-market eurozone stocks, while hedging out the effects of currency fluctuations of the euro to the U.S. dollar. The fund, which is a year old, has been one of the few Europe-focused currency-hedged ETFs to attract assets this year, thanks to its low-volatility approach. Investors have poured about $155 million into the fund in 2016.
- The small-cap WisdomTree Europe Hedged SmallCap Equity Fund (EUSC), with $245 million in assets, is essentially a small-cap version of HEDJ. The fund looks for dividend-paying, eurozone small-cap equities and hedges out currency exposure, and despite its weak performance (chart below), it has seen $8.8 million in net creations year-to-date.
All four of these funds have struggled to find upside in 2016, and could benefit from a rallying dollar.
Chart courtesy of StockCharts.com
Finally, consider a fund that hedges currency exposure, but only with one foot in the trade: the 50/50 hedged IQ 50 Percent Hedged FTSE Europe ETF (HFXE). This Europe fund tracks an index of developed-Europe-based large- and midcap companies, with approximately half of its foreign currency exposure hedged into the U.S. dollar.
The ETF, which came to market last July, and which has a modest $67 million in assets, offers a unique take on the currency-hedged theme. HFXE has now lost about 2.3% before the Brexit vote, but has managed to attract more than $40 million in net creations so far this year. The U.K. is the fund’s largest country allocation, at 31%, followed by France, at 15%.
What happens next to the dollar will be crucial to the appeal of these currency-hedged ETFs, just as much as what happens next to European equities on the heels of an unexpected U.K. exit from the eurozone.
Contact Cinthia Murphy at [email protected].