The Fed’s taper act, and consequently, the outflow of cheap dollars from international markets, caused many currencies to slump badly against the U.S. dollar, while some had also bled double digits following the start of the taper.
The slide led many investors to choose products that eliminate currency risks and brought currency-hedged ETFs into the limelight. iShares – the world’s biggest provider of ETFs – benefited from this trend as it has already launched four currency hedged ETFs on the market this year (read: Inside the New Currency Hedged ETFs from iShares).
The latest addition is iShares Currency Hedged MSCI EMU ETF, which trades under the ticker HEZU. Concurrently, the issuer has also launched a product for income-focused investors – iShares Global REIT ETF (REET).
Below, we have highlighted HEZU and REET in some detail for investors looking to try their hands on these newly listed products.
HEZU in Focus
This ETF looks to match the local currency performance of stocks from developed market countries within the European Monetary Union (:EMU), excluding the influence of the euro’s fluctuations. The product follows the MSCI EMU 100% USD Hedged Index, charging 51 basis points as fees (see all European Equity ETFs).
This ETF is a play on the popular iShares product – iShares MSCI EMU ETF (EZU) – with a hedge to strip out the euro currency exposure. The fund holds 249 well-diversified securities in its basket dominated by Financials (23%) and followed by Industrials and Consumer Discretionary. Top nations include France, Germany, Spain and the Netherlands.
The fund is a good bet for investors willing to place a hedged bet on European equities. The European Central Bank has recently moved deposit rates into negative territory for the first time ever to fight deflationary pressures.
Though inflation levels are currently near zero in the Euro zone, the ECB’s latest move could definitely hit the euro’s value when compared to the greenback. If that comes to pass, HEZU could turn out to be a good play (read: Negative Interest Rates Put These European ETFs in Focus).
HEZU ETF Competition: Wisdomtree Europe Hedged Equity Fund (HEDJ) and db X-Trackers MSCI Europe Hedged Equity Fund (DBEU) are the two products which might pose a threat to the recently launched ETF.
HEDJ is easily the most popular option among them with an asset base of $1.8 billion and significant additions this year. The product follows the WisdomTree Europe Hedged Equity Index, holding about 120 stocks in its portfolio and charging 58 basis points as fees.
DBEU, on the other hand, manages a relatively smaller asset base of $191.8 million, charging 45 basis points as fees.
REET in Focus
REET looks to provide exposure to global real estate equities in developed and emerging markets by tracking the FTSE EPRA/NAREIT Global REIT Index.
The fund holds a diversified basket of 239 stocks from the Financial sector, with none of the stocks occupying more than 3%, save the top holding. Simon Property Group (5.5%), Unibail-Rodamco and Public Storage occupy the top three spots.
Country-wise, U.S. REITs dominate the fund with an allocation of 6.3%, followed by single-digit exposure to countries like Australia, Japan and U.K. The fund has accumulated $2.5 million and charges 14 basis points as fees.
REET may be an intriguing choice for investors looking for yields in the current environment of ultra low rates. REITs provide solid dividend payouts as they are required to distribute at least 90% of their taxable income to shareholders annually in the form of dividends. They have also provided excellent capital appreciation returns to investors over the longer term.
Moreover, REITs provide diversification benefits to a portfolio and act as an inflation hedge (read: 3 Excellent REIT ETFs You Should Not Ignore).
REET ETF Competition: The product is expected to face competition from some of the veterans in the global real estate ETF space. SPDR Dow Jones International Real Estate ETF (RWX) is the largest and most popular ETF in the space with an asset base of $4.9 billion.
Vanguard Global ex-U.S. Real Estate ETF (VNQI) and SPDR Dow Jones Global Real Estate ETF (RWO) are also quite popular in this space, each managing assets over $1.4 billion.
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