The year 2013 has so far been rewarding for WisdomTree, thanks
to the surging asset base of many of its products. Growing
investor interest in the ultra-popular Japan Hedged Equity Fund (
) is a case in point. The fund has seen massive inflows of nearly
$8.2 billion in the first half of the year, taking the total
asset base to $10.3 billion.
The issuer has also enjoying the attention that is being paid
to many of its other international products, which make up a
decent chunk of its offering. This burst of success has
encouraged WisdomTree to introduce two more currency-hedged
funds: Japan Hedged SmallCap Equity Fund (
) and the United Kingdom Hedged Equity Fund (
), while putting many others in the pipeline.
The new funds look to add investor options for targeting Japan
small caps and securities from the United Kingdom without
worrying about a slump in their respective local currencies.
Below, we have highlighted some of the other key details for
these new funds which could be intriguing picks for investors
seeking new ways to target these important markets:
DXJS in Focus
This fund looks to offer exposure to small cap Japanese stocks
while, at the same time, provide hedge against any fall in the
Japanese yen (read:
As Yen Weakens, Currency Hedged ETFs Soar
). This will be done by tracking the WisdomTree Japan Hedged
SmallCap Equity Index.
The fund charges 58 bps in fees per year from investors, and
looks to use a dividend weighting methodology. The included
companies must be based in Japan, should have paid out at least
$5 million in cash dividends in the prior year, and are required
to have a market cap of at least $100 million.
The ETF holds about 528 securities that are widely spread out
across a number of companies. None of the securities hold more
than 0.7% of the total assets, suggesting no concentration risk.
From a sector look, consumer discretionary and industrials take
the top two spots with a combined 50% share.
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 (read:
Japan ETFs Crumble After Prime Minister's
With that being said, the new fund is likely to attract
investor interest as the hedged exposure technique has already
seen wide acceptance for Japan investing. In addition, DXJS is
the first currency hedged ETF providing exposure to Japanese
small caps that have been trading at a discount to large caps
over the past few years, making them attractive choices at the
With respect to the unhedged small cap Japan funds, there are
in the market. More popular between the two is the WisdomTree
Japan SmallCap Dividend Fund (
), which has amassed nearly $234 million in AUM and charges 58
bps in fees and expenses (read:
Small Cap Japan ETFs: Overlooked Winners?
DXPS in Focus
This ETF looks to track the WisdomTree United Kingdom Hedged
Equity Index, which is dividend weighted and provides exposure to
British shares. It offers a unique way to capitalize the returns
from the leading U.K. firms while hedging exposure to the British
The fund manages a basket of 140 stocks, which are somewhat
concentrated in its top 10 holdings with 47% of assets. Vodafone
), GlaxoSmithKline (
), and Royal Dutch Shell (
) take the top spots with a combined 15% plus share (read:
Are UK ETFs in Serious Trouble?
In terms of sector exposure, the product has a slight tilt
towards consumer staples, financials and energy each comprising
at least 17% share in the basket. The fund charges 48 bps in
Like the Japanese fund, this ETF also seeks to outperform when
the pound weakens, and underperform when the pound is surging
against the U.S. dollar (read:
Tough Times Ahead in Commodity Currency ETFs?
With respect to competition, while there is no direct
competitor, the largest and ultra-popular iShares MSCI UK Index
) still poses risk to the success of the new ETF. However, the
product would get the first mover advantage in the UK space,
as DXPS is the only currency hedged ETF for the British
Can They Succeed?
Currency hedging appears to be a good strategy in the current
market as the Fed's planned tapering of bond purchases later this
year could increase interest rates. While the rising interest
rate environment is good for global markets, it might further
dampen foreign currencies which are already depressed relative to
the U.S. dollar (read:
3 Currency ETFs Hit Hard By Taper Talk
As such, these products could see big inflows if market
conditions remain the same, and if international
investing-without the dollar-remains popular in the second half
of the year.
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WISDMTR-JP SC D (DFJ): ETF Research Reports
WISDMTR-J HEF (DXJ): ETF Research Reports
WISDMTR-JP HSCF (DXJS): ETF Research Reports
WISDMTR-UK HEQ (DXPS): ETF Research Reports
ISHARS-UTD KING (EWU): ETF Research Reports
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