WisdomTree, the publicly traded New York-based ETF firm,
continues to expand on the blockbuster success it's had with the
WisdomTree Japan Hedged Equity Fund (NYSEArca:DXJ) by pushing
forward plans for yet another currency-hedged ETF, this time
focused on Germany.
The WisdomTree Germany Hedged Equity Fund will track a
proprietary WisdomTree dividend-weighted index that taps into
German equities while neutralizing exposure to currency
fluctuations between the euro and the U.S. dollar, according to a
filing submitted to regulators this week.
WisdomTree first put this fund in registration in July 2011, and
it seems this time the firm is refocusing the portfolio to include
only Germany-incorporated companies that derive less than 80
percent of their revenues domestically. That screen is designed to
capture companies that have a more global revenue base, meaning
those that should benefit most from a strong U.S. dollar.
The currency hedge mechanism is, indeed, designed to protect
investors from changes in the euro-dollar exchange rates, and
should deliver higher returns than a similar un-hedged portfolio
when the euro is weakening against the dollar. The reverse,
however, is true-the hedged ETF will underperform an un-hedged
counterpart when the dollar is the one losing ground to the
The recipe is the same one WisdomTree has applied to Japan
equities, and one that has turned DXJ into a $6.8 billion fund amid
net inflows of more than $4.77 billion, and gains exceeding 25
percent in just over three months, as the yen continues its
downward slide against the U.S. dollar.
By comparison, the $7.3 billion iShares MSCI Japan Index Fund
(NYSEArca:EWJ)-for all purposes DXJ's un-hedged competitor-has
attracted $3.50 billion year-to-date and tagged on gains of 15
percent in the period; a 10 percentage-point difference that's
mostly tied to the currency impact on the overall returns.
When it comes to Germany, Germany-listed securities have
recently struggled to shake off the eurozone debt malaise centered
on countries like Greece, Spain and Italy, but it remains one of
the leading economies in the region.
The $2.68 billion iShares MSCI Germany Index Fund
(NYSEArca:EWG), for instance, has bled 4 percent of its value
year-to-date-although the fund remains up nearly 8 percent
year-on-year-amid net outflows of $1.27 billion.
To be eligible for inclusion in the WisdomTree planned ETF, a
company needs to be primarily listed on German exchanges, have paid
at least $5 million in cash dividends in the prior year, have a
market capitalization of at least $1 billion and meet trading
Securities are weighted based on their annual cash dividends,
with those paying the most snagging a bigger piece of the pie.
Individual sector allocations are capped at 25 percent of the
overall portfolio, the filing said.
Ticker and fees were not disclosed.
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