WisdomTree Investments ( WETF ), the industry's fifth largest ETF provider, has a long list of successful products be it currency hedged, pure domestic or international equity funds. In fact, WisdomTree has been the king in the currency hedged ETF world with blockbuster funds - Europe Hedged Equity Fund ( HEDJ ) and Japan Hedged Equity Fund ( DXJ ) - having AUM of $19.4 billion and $16.2 billion, respectively.
Encouraged by the incredible success of these two funds, WisdomTree now plans for their unhedged versions. These ETFs will simply provide exposure to the export-oriented dividend-paying European and Japanese stocks excluding the currency derivatives, making them WisdomTree's first unhedged international ETFs.
While a great deal of the key information - such as expense ratio or ticker symbol - was not available in the initial release, other important points were released in the filing. We have highlighted those below for investors, who may be looking for a new income play targeting Europe and Japan from WisdomTree should it pass regulatory hurdles (read: Can Anyone Match WisdomTree in Currency-Hedged ETFs? ):
WisdomTree Europe Equity Fund in Focus
The proposed ETF looks to offer exposure to European equity securities, particularly shares of European exporters, which tend to benefit from the falling euro. This could easily be done by the WisdomTree Europe Equity Index, which consists of dividend-paying companies that derive at least 50% of their revenue from countries outside of Europe and have at least $1 billion in market capitalization.
Though this planned fund will likely get first mover advantage due to the inclusion of export oriented dividend paying companies, it will face stiff competition from FTSE Europe ETF ( VGK ) and First Trust STOXX European Select Dividend Index Fund ( FDD ) . VGK is the most popular and liquid ETF in the European space with AUM of over $14.9 billion and tracks the FTSE Developed Europe Index. It charges 12 bps in fees per year from investors (see: all the European ETFs here ).
On the other hand, FDD follows the STOXX Europe Select Dividend 30 Index, providing exposure to high-dividend yielding companies across 18 European countries that have a positive five-year dividend-per-share growth rate and a dividend to earnings-per-share ratio of 60% or less. It has amassed $158.7 million in its asset base and has an expense ratio of 0.60%.
Further, the success of the proposed ETF depends on European economic prospects, which look bright at present. This is especially true as the economy is on the mend with the rounds of monetary easing. The European Central Bank (ECB) is pumping trillions of euros into the sagging Euro zone economy courtesy its QE program that began in March and will run through September 2016. Additionally, cheap oil, higher exports, and weak euro are providing a further boost to the region (read: Health of Euro Zone Recovers: ETFs to Watch ).
If the current trends continue, the WisdomTree proposed fund, if approved, will not find it difficult to attract investor attention.
WisdomTree Japan Equity Fund in Focus
This proposed ETF looks to target export-oriented, dividend-paying Japanese equity securities by tracking the WisdomTree Japan Equity Index. The Index consists of dividend-paying companies incorporated in Japan and traded on the Tokyo Stock Exchange that derive less than 80% of their revenue in Japan.
Similar to its Europe counterpart, this fund will also get first mover advantage but iShares MSCI Japan ETF ( EWJ ) could pose a major threat. EWJ is an ultra-popular fund targeting the Japanese economy with an AUM of over $19.9 billion and charging 48 bps in fees per year (read: 5 Japan ETFs Set to Rise Higher ).
Currently, the Japanese economy is experiencing a slowdown despite the slew of monetary easing measures and the Prime Minister Shinzo Abe's reform policy popularly referred to as Abenomics. However, earnings of Japanese companies have improved since the launch of Abenomics and a weaker currency is making its exports more competitive leading to higher exports. This lethal combination will drive stock prices higher for exporters, making the proposed ETF a compelling choice, once approved.