Revisiting Euro Currency Hedged ETFs
This article was originally published on ETFTrends.com.
The C urrencyShares Euro Currency Trust (FXE) is lower by nearly 3% over the past month and some foreign currency market observers believe the euro has more near-term downside in store against the dollar.
Investors looking to take advantage of that trend may want to consider currency-hedged exchange traded funds, including the X-trackers MSCI EMU Hedged Equity ETF (DBEZ) .
DBEZ “seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EMU IMI U.S. Dollar Hedged Index. DBEZ offers investors purer access to Eurozone equities while seeking to mitigate exposure to currency fluctuations between the U.S. dollar and the euro,” according to DWS.
Some currency traders are forecasting more near-term weakness in the euro.
“The immediate short-bias is vulnerable heading into these support targets with a breach above 1.1448 needed clear the way for a larger recovery. From a trading standpoint, look to reduce short-exposure / bring in protective stops here and be on the lookout for signs of price exhaustion (note we’re already marking divergence into these lows). Keep in mind we get the final read on July Eurozone CPI figures tomorrow,” according to DailyFX.
What Drives DBEZ
DBEZ holds more than 700 stocks and allocates about 60% of its combined weight to Germany and France, the two largest Eurozone economies. The Netherlands and Spain combine for almost 20%.
Some investors are growing increasingly wary of European banks as ETFs tracking financials saw net outflows in Europe and the U.S. Goldman sachs research found mutual funds were on average holding fewer bank shares than benchmark indices and even raised short positions on the sector year-over-year. However, some market observers believe opportunities remain with European stocks.
European stocks sport compelling value relative to major U.S. equity benchmark. European cyclical stocks are attractively against U.S. equivalents, which is a positive for DBEZ.
DBEZ allocates about a third of its weight to financial services and industrial stocks. The consumer discretionary and technology sectors combine for 23% of the fund's weight.
For more information on the currency hedging strategy, visit our currency-hedged ETFs category.
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