As noted in separate articles on ETF.com this month, annual flows into U.S.-listed exchange-traded funds are in record territory, and it's the giant broad market ETFs―such as the SPDR S&P 500 ETF (SPY)―that have been the most popular funds in 2016.
Yet, as overwhelming and widespread the rush into exchange-traded funds has been this year, not all ETFs have garnered investors' favor. In fact, as of this writing, there are 10 ETFs with year-to-date outflows of more than $2 billion each.
The common thread shared by most of these ETFs? They're focused on international equities. Seven of the 10 least popular ETFs of 2016 track equities outside of the U.S., particularly European and Japanese stocks. That includes the biggest loser of them all: the WisdomTree Europe Hedged Equity Fund (HEDJ).
Reversal Of Fortune
The ironic part about HEDJ being the least popular ETF of 2016 is that it was the most popular ETF of 2015. Last year, the fund saw inflows of $13.9 billion; this year it recorded outflows of $8.1 billion. Talk about a reversal of fortune.
HEDJ's fall from grace is a reflection of investors throwing in the towel on the ECB-stimulus-strong-dollar trade. HEDJ provides dividend-weighted exposure to European stocks with a tilt toward exporters. In addition, it hedges its currency exposure by shorting the euro.
HEDJ is the perfect ETF in a scenario in which European stocks are rallying and the euro is weakening against the dollar. In that case, its export-heavy portfolio would benefit from a weak euro, while its euro short would protect it against currency losses.
Performance Rebounds Since The Election
For much of 2016, HEDJ wasn't performing well. Despite unprecedented monetary stimulus from the ECB, European stocks were lagging (they still are) and the dollar was selling off. Part of that equation changed in the last several weeks―the dollar surged to 14-year highs following the election of Donald Trump, bumping up HEDJ's year-to-date gain from close to zero to more than 9% currently. But that's only stemmed the bleeding of assets for HEDJ.
YTD Return For HEDJ