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Currency Hedged Europe ETFs to Buy on ECB Meet

Sanghamitra Saha

The European Central Bank’s (ECB) latest meeting held on June 8, 2017 gave mixed signals. In the meeting, the ECB upped the euro area economic growth forecast from 2017 to 2019, and also hinted that risks within the region are now "broadly balanced."

On the other hand, the bank lowered its inflation projection of the region due to the recent decline in oil prices. The bank now expects the underlying inflation to move up modestly over the medium term.

While the ECB held interest rates at 0.0% on June 8, it ruled out possibilities of additional rate cuts. However, there were indications of that the quantitative easing (QE) program would be extended should the need arise.

Against this backdrop, below we highlight the key ETF losers and winners following the ECB meeting and their expected future course in the near term.

Inside the Losers

CurrencyShares Euro Trust FXE

The euro ETF lost about 0.5% on June 8, 2017 as the ECB pared down inflation projections. Apart from the ECB, the greenback’s surge in anticipation of a June Fed rate hike weighed on euro (read: Will Euro ETFs Stand Steady or Fall Like a 'House of Cards'?).

However, investors note that the euro has been on a tear lately thanks to the recovery on the Euro zone economy and less-than-feared political risks. Though the euro slipped right after the announcement of inflation projections, the common currency is likely to recover in the coming days, as believed by several analysts like Timothy Graf, head of macro strategy at State Street Global Markets.

“However, he added that the inflation levels would need to show further upwards movement before the euro would see a significant uptick,” as per an article published on CNBC. So investors should keep a tab on the fund in the coming days (read: Why & How to Trade the Soaring Euro with ETFs).

Vanguard FTSE Europe ETF VGK

The largest Europe ETF lost about 0.4% on June 8, probably due to the currency euro’s weakness, ECB’s hint of no further cuts and risks regarding the U.K. snap election. However, with the ECB still being accommodative and Eurozone economies on the mend, we along with many other analysts expect upside in the product over the medium term (read: 7 Reasons to Bet on These European ETFs Now).

Currency-Hedged ETFs Winning Proposition

Since decline in VGK was more of a currency story, investors can see upside potential in the following currency-hedged ETFs.

iShares Currency Hedged MSCI Eurozone HEZU

Though the non-currency hedged version of the Eurozone ETF iShares MSCI Eurozone EZU lost about 0.2%, its currency hedged version gained about 0.3% on June 8, 2017. And why not? After all, the ECB boosted the bloc’s GDP growth forecast. Investors should also note that since euro-area GDP grew 0.6% in Q1, stronger than initially estimated, HEZU a good pick right now.

iShares Currency Hedged MSCI Spain HEWP

The economy in Spain is improving as evident by a long stretch of growth and a brighter inflationary outlook. The Spanish economy grew 0.8% sequentially in Q1 of 2017, following 0.7% advancement in the fourth quarter.

In fact, the Spanish government will up its growth forecasts for this year and the next to incorporate recent job gains and higher confidence levels. Notably, the economy advanced 3.2% in 2016. HEWP gained about 1.3% on June 8, 2017, while the non-hedged version EWP was up about 0.7%.

WisdomTree Europe Hedged Equity Fund HEDJ

The fund gained about 0.2% on June 8. It is heavy on France (25.1%) and Germany (25.0%). Spain and Netherlands also has a double-digit weight in the fund (read: 6 European Country ETFs to Buy Now).

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CRYSHS-EURO TR (FXE): ETF Research Reports
ISHARS-EMU IDX (EZU): ETF Research Reports
ISHARS-CHM SPN (HEWP): ETF Research Reports
WISDMTR-I HE FD (HEDJ): ETF Research Reports
VANGD-FTSE EUR (VGK): ETF Research Reports
ISHARS-CH MS EM (HEZU): ETF Research Reports
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