2013 has been a great year for WisdomTree as the firm has seen
its total asset base surge. While many of its funds have become
more well-known, the biggest inflows were seen in their now
Hedged Equity Fund (
The fund has seen over $4 billion in net inflows to start the
year, catapulting the fund to the top of the charts in this
measure. Furthermore DXJ is now up to over $6 billion in total
assets, making the ETF the most popular fund in the company's
nearly 50 fund lineup (also see
WisdomTree Files for New International ETF
Clearly, investors are beginning to see the promise of
currency-hedged investing, and how it can provide tremendous
gains for a portfolio. Probably due to this success, WisdomTree
has now put into registration three more products that hedge out
currency risks for investors.
These new funds, if ever approved, look to target three
distinct markets around the globe, Korea, Japan (small caps), and
Great Britain. Thus, American investors may soon have even more
options to target international securities without worrying about
a slumping local currency or a surging dollar.
However, investors should note that these filings are just
initial ones, and that many of the key details weren't released
to the SEC at this time, such as expense ratios and ticker
symbols. Still, a good deal of information was provided to
investors and we have highlighted some of the key points in the
Japan Hedged SmallCap Equity Fund
This proposed fund
looks to hedge out exposure to the yen while still providing
access to small cap Japanese stocks. This looks to be done by
following the WisdomTree Japan Hedged SmallCap Equity Index.
This benchmark is dividend weighted and also looks to have a
tilt towards stocks that have big global operations, and thus a
great deal of exports (and currency exposure). Firms included
must also be incorporated within Japan, have paid out at least $5
million in cash dividends in the prior year, and have a market
cap of at least $100 million.
In terms of the currency hedge, the fund looks to enter into
forward currency contracts or futures designed to offset exposure
to the Japanese yen. Thus, the fund looks to outperform when the
yen is sliding, and underperform unhedged benchmarks when the yen
is strengthening (see
Japan ETFs: Six Ways to Play the Surge
For comparable unhedged
already on the market, investors have WisdomTree's
. This product is relatively popular with $190 million in assets,
though it could face some cannibalization from this new entrant
if ever launched.
United Kingdom Hedged Equity Fund
For a European hedged play, investors may soon have a
WisdomTree option for the British market.
This proposed fund
looks to provide access to British equities, but also hedge out
exposure against the pound as well.
This looks to be done by following the WisdomTree United
Kingdom Hedged Equity Index, a dividend weighted index that
provides exposure to British shares. Unlike the previous fund
though, this product will not focus in on small caps and will
instead have a wide focus (see
Are UK ETFs in Serious Trouble?
The product will tilt towards firms that have a significant
global revenue base though, so at least that aspect will be
similar to the Japanese ETF. In addition, investors should note
that this product looks to only hold stocks that have paid at
least $5 million in cash dividends in the prior year, have a
daily dollar volume level of at least $100,000, and at least $1
billion in market cap.
The fund also seeks to outperform during times when the market
is seeing pound weakness, and underperform when the pound is
surging against the U.S. dollar. While there aren't a whole lot
of competitors, easily the biggest British ETF is
, so that could pose as some stiff competition.
WisdomTree Korea Hedged Equity Fund
Korean investments are very interesting at this time, as they
can be quite volatile thanks to geopolitical worries.
Additionally, they are also quite fond of easing and can often
experience a deprecating currency like their Japanese
For these reasons,
this proposed ETF
could be reasonably popular with investors who are looking to
avoid at least some of these issues. This looks to be done by
tracking the WisdomTree Korea Hedged Equity Index, a benchmark of
Korean-listed stocks that have at least $5 million in net income
in the prior year (also see
Direxion Launches 2 Emerging Market Leveraged
This means that this proposed ETF will not be using dividends
as a filter, unlike the other two on the list. However, it
will-like the other two-hone in on companies that do a big chunk
of their business outside the domestic market, as these are more
impacted by currency issues.
The fund will also seek to outperform when the Korean won is
weakening relative to the U.S. dollar, while it will likely
underperform when the won is experiencing strength against the
USD. In terms of competition, the main player in the space is
, which is quite popular but unhedged against currency
Can they succeed?
It is hard to see if these currency-hedged ETFs will succeed
if they are approved. For quite some time, DXJ was relatively
unpopular and the fund only caught on once the massive easing
campaign in Japan reached its latest stage (see
Q1 ETF Asset Report: Japan ETFs Reign
However, once the fund started gaining some inflow momentum,
nothing stopped it from catapulting up the charts. It also didn't
hurt that this fund saw a huge level of outperformance when
compared to the unhedged competitor of
So, it is possible that these ETFs could see some inflows (if
approved), but they will probably need some outside help as well.
Expenses are bound to be higher in this space, but as we have
seen with DXJ, investor interest can definitely be there when the
conditions are right.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
WISDMTR-JP SC D (DFJ): ETF Research Reports
WISDMTR-J HEF (DXJ): ETF Research Reports
ISHARS-JAPAN (EWJ): ETF Research Reports
ISHARS-UNITED K (EWU): ETF Research Reports
ISHARS-S KOREA (EWY): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report