Investors have plowed upward of $120 million into the WisdomTree Europe Hedged Equity Fund (HEDJ) in the past two sessions, more than tripling the size of the fund and recalling the stellar success of another currency-hedged WisdomTree ETF, the Japan-focused "DXJ."
The assets involved that more than tripled the size of HEDJ to $164.5 million are still trivial compared with the more than $4.4 billion that has flowed into the WisdomTree Japan Hedged Equity Fund (DXJ) in the past four months, according to data compiled by IndexUniverse . DXJ, now a $5.6 billion fund, is one of the more spectacular ETF growth stories in the ETF industry’s 20-year history.
The bigger question here is that given the ongoing problems in the debt-laden eurozone, and given the euro’s recent weakening against the dollar, are investors — now appetized to the virtues of a fund like DXJ in the context of a weakening yen— waking up to the potential usefulness of a fund like HEDJ that takes the deleterious effects of a weakening euro off the table for U.S. investors?
“We thought, in the back of our minds, if you got people to see crystal clear on one currency, it’s going to open their mind on the broader application of the strategy,” Jeremy Schwartz, WisdomTree’s director of research, said about the potential for turning DXJ’s success into a much broader phenomenon.
Schwartz stressed that WisdomTree itself took some time in arriving at the right indexing formulations for both DXJ and HEDJ, which are now broadly similar in how they access their respective target markets.
DXJ began in June 2006 as a pure Japan equity fund — albeit with a dividend screen — before it became currency hedged. And, until last summer, HEDJ was a broad multicurrency-hedged fund that focused on a universe of securities similar to those found in the MSCI EAFE Index. It now focuses solely on the euro.
Also, both funds have export tilts that emphasize multinational firms that derive large percentages of their revenues from exports.
“Everything about HEDJ is designed with DXJ in mind,” Schwartz said.
If the latest creations are an indication of things to come, the potential could be huge. Apart from the dollar, the euro is one of the top three currencies, along with the yen and the British pound.
The euro, now valued at $1.28, has declined against the dollar by 1.42 percent this month and 2.79 percent so far this year, and Schwartz noted that some observers say parity with the dollar might be exactly what the euro needs to achieve to help the eurozone climb more decisively out of its doldrums.
Schwartz noted that there are good reasons why the euro is likely to weaken against the dollar, particularly if the U.S. economy continues to stabilize, which would likely lead to official U.S. interest rates heading higher sooner than those in the eurozone.
"We’re surely putting a more aggressive push on ‘HEDJ’—we’re starting to advertise for it on CNBC. We do think it is appealing to more and more people," Schwartz said, adding that many who expressed interest in DXJ are now asking WisdomTree for more information about HEDJ.
HEDJ pulled in about $50 million on Wednesday, March 27—doubling in size overnight—and another $67 million the following day, according to data compiled by IndexUniverse.
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