When Draghi Turns Kuroda, This ETF Will Surge
European Central Bank President Mario Draghi finally gave global markets something to cheer about earlier today when he announced the ECB lowered its benchmark interest rate to 0.5 percent from 0.75 percent.
Perhaps more importantly, Draghi has left the door open to further monetary easing and perhaps taking the ECB deposit rate to negative territory from the current level of zero, Bloomberg reported.
Draghi has not yet gone the way of his Japanese counterpart, new Bank of Japan Governor Haruhiko Kuroda. However, if Draghi does take a stroll down Unlimited Easing Boulevard, the WisdomTree Europe Hedged Equity Fund (NYSE: HEDJ) stands as an obvious ETF beneficiary of potentially ultra-loose ECB monetary policy.
With the stunning success of the WisdomTree Japan Hedged Equity Fund (NYSE: DXJ), the top asset-gathering U.S.-listed ETF in 2013, investors are acknowledging the power of hedged currency strategies. Regarding HEDJ, the ETF is being colloquially referred to as "DXJ for Europe."
The comparison is accurate because, as DXJ does with the yen, HEDJ hedges euro exposure. And like DXJ, HEDJ's lineup is tilted heavily toward exporters, not companies that are dependent on Eurozone domestic economies for the bulk of their revenue.
"These companies are selected if they are domiciled in Europe and if more than 50% of their revenues come from outside Europe," said WisdomTree Research Director Jeremy Schwartz in a note.
HEDJ's story is an interesting one. In late August 2012, WisdomTree converted HEDJ from a multi-region, multi-currency fund to one focused exclusively on Europe-based dividend-paying exporters.
While DXJ has clearly been the apple of investors' currency hedged ETF eyes, HEDJ has enjoyed a staggering asset-gathering run of its own. On October 15, 2012, HEDJ had $21.7 million in AUM. That number was $242 million as of May 1, a better than eleven-fold increase in seven months.
And like DXJ, HEDJ is delivering for investors.
"The WisdomTree Europe Hedged Equity Index had positive performance attribution in 8 out of 10 sectors. The WisdomTree Europe Hedged Equity Index was up 5.46% through 04/15/2013, compared to the MSCI EMU Local Currency Index, which returned 2.07% for the same period," said Schwartz.
The MSCI EMU Local Currency Index is the index tracked by the iShares MSCI EMU Index Fund (NYSE: EZU). Year-to-date, EZU is up 2.5 percent. HEDJ was up four percent prior to Thursday's 1.4 percent gain.
HEDJ also offers something for conservative investors with a combined 36.5 percent weight to staples and health care names. Additionally, the ETF's weight to financial services names is just 7.7 percent. Sector weights aside, current holders of HEDJ likely have just one message for Draghi: "Ease baby, ease."
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