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WisdomTree Going Beyond Hedged International ETFs

WisdomTree Investments (NASDAQ: WETF ), the industry’s fifth largest ETF provider, has a long list of successful products, be it currency hedged, pure domestic or international equity funds. In fact, WisdomTree has been the king in the currency hedged ETF world with blockbuster funds – Europe Hedged Equity Fund (NYSEARCA: HEDJ ) and Japan Hedged Equity Fund (NYSEARCA: DXJ ) – having AUM of $19.4 billion and $16.2 billion, respectively. Encouraged by the incredible success of these two funds, WisdomTree now plans for their unhedged versions. These ETFs will simply provide exposure to the export-oriented dividend-paying European and Japanese stocks excluding the currency derivatives, making them WisdomTree’s first unhedged international ETFs. While a great deal of the key information – such as expense ratio or ticker symbol – was not available in the initial release, other important points were released in the filing. We have highlighted those below for investors, who may be looking for a new income play targeting Europe and Japan from WisdomTree should it pass regulatory hurdles: WisdomTree Europe Equity Fund in Focus The proposed ETF looks to offer exposure to European equity securities, particularly shares of European exporters, which tend to benefit from the falling euro. This could easily be done by the WisdomTree Europe Equity Index, which consists of dividend-paying companies that derive at least 50% of their revenue from countries outside of Europe and have at least $1 billion in market capitalization. Though this planned fund will likely get first mover advantage due to the inclusion of export-oriented, dividend paying companies, it will face stiff competition from FTSE Europe ETF (NYSEARCA: VGK ) and First Trust STOXX European Select Dividend Index Fund (NYSEARCA: FDD ) . VGK is the most popular and liquid ETF in the European space with AUM of over $14.9 billion and tracks the FTSE Developed Europe Index. It charges 12 bps in fees per year from investors. On the other hand, FDD follows the STOXX Europe Select Dividend 30 Index, providing exposure to high-dividend yielding companies across 18 European countries that have a positive five-year dividend-per-share growth rate and a dividend to earnings-per-share ratio of 60% or less. It has amassed $158.7 million in its asset base and has an expense ratio of 0.60%. Further, the success of the proposed ETF depends on European economic prospects, which look bright at present. This is especially true as the economy is on the mend with the rounds of monetary easing. The European Central Bank (ECB) is pumping trillions of euros into the sagging Eurozone economy, courtesy its QE program that began in March and will run through September 2016. Additionally, cheap oil, higher exports, and weak euro are providing a further boost to the region. If the current trends continue, the WisdomTree proposed fund, if approved, will not find it difficult to attract investor attention. WisdomTree Japan Equity Fund in Focus This proposed ETF looks to target export-oriented, dividend-paying Japanese equity securities by tracking the WisdomTree Japan Equity Index. The Index consists of dividend-paying companies incorporated in Japan and traded on the Tokyo Stock Exchange that derive less than 80% of their revenue in Japan. Similar to its Europe counterpart, this fund will also get first mover advantage but iShares MSCI Japan ETF (NYSEARCA: EWJ ) could pose a major threat. EWJ is an ultra-popular fund targeting the Japanese economy with an AUM of over $19.9 billion and charging 48 bps in fees per year. Currently, the Japanese economy is experiencing a slowdown despite the slew of monetary easing measures and the Prime Minister Shinzo Abe’s reform policy popularly referred to as Abenomics. However, earnings of Japanese companies have improved since the launch of Abenomics and a weaker currency is making its exports more competitive leading to higher exports. This lethal combination will drive stock prices higher for exporters, making the proposed ETF a compelling choice, once approved. Original Post

WisdomTree Plans Another Small-Cap Hedged Europe ETF

WisdomTree Investments (NASDAQ: WETF ), the industry’s fifth largest ETF provider, has been stuffing up its product pipeline with hedged products. Already a reputable issuer with rich experience in rolling out successful currency hedged products, WisdomTree was quick to spot new opportunities latent in the international arena. Presently, WisdomTree dominates the space with the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) and the WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) having AUM of $13.5 billion and $10.6 billion, respectively. Other issuers like Deutsche Bank and iShares are far lagging the WisdomTree funds. However, the loose money market policies have now encouraged WisdomTree to file for a new hedged ETF targeting the small-cap European space. Newly Filed Product in Focus The passively managed fund looks to provide exposure to small companies across Europe by tracking the performance of the WisdomTree Europe Hedged SmallCap Equity Index. The index has a tilt toward dividends and rules out the weakness in euro against the greenback. To do so, the concerned index takes into account the dividend paying companies in the bottom 10% of the total market cap of the WisdomTree Dividend Index of Europe, Far East Asia and Australasia. Selected stocks trade in euros and are domiciled in a European country. The utmost weight of any single security is sealed at 2%, whereas the ceiling for the maximum weight of any one sector and any one country remains at 25% . The fund looks to charge 58 bps in fees. How Does It Fit in the Portfolio? The newly launched ETF can be a good choice for investors seeking exposure to the small cap companies within the Europe while avoiding current risks. For the U.S. investors, a descending euro affects total returns, when repatriating to dollars. Following the recent QE launch in the Eurozone and negative interest rates prevailing in several economies, the euro has weakened to multi-year lows versus the U.S. dollar. For this reason, investors wanted to consider a hedged euro play while intending to stay exposed in the likely recovery of Europe. This is especially true given that small cap companies are closely tied to the European economy and generate the majority of their revenues from the domestic market. Moreover, they pick up faster than their larger counterparts in a growing economy. Also, focus on dividends will benefit investors as the region is presently seeing an ultra-low interest rate environment. So monetary easing and currency weakness should support European consumption and may in turn boost small cap stocks. This clearly explains why WisdomTree’s recent filing is well timed. ETF Competition The newly launched fund is likely to face competition from other WisdomTree products such as the WisdomTree Europe Small Cap Dividend ETF (NYSEARCA: DFE ), the iShares MSCI Europe Small-Cap ETF (NASDAQ: IEUS ) and the SPDR EURO STOXX Small Cap ETF (NYSEARCA: SMEZ ). Among the trio, DFE emerged as a popular player as it has amassed as much as $734.5 million in assets and tracks the WisdomTree Europe SmallCap Dividend Index, a fundamentally weighted index that measures the performance of the small-capitalization segment of the European dividend paying market. DFE also charges 58 bps in fees. WisdomTree’s prior success in similar themed products should translate into recognition for the recently filed ETF, if approved. Plus, the new product has a hedged treatment unlike others, calling for additional gains in the current environment.