Market Overview

Hedged European ETFs Lead Rally

Hedged European ETFs Lead Rally

The move by the European Central Bank this week was not a major surprise. However, the magnitude of the new qualitative easing plan did come in above many experts’ predictions. The higher-than-expected amount (€60 billion) that the ECB will inject into the economy each month helped send stocks around the globe higher the euro to the lowest level in over a decade.

Related Link: Is The Eurozone Readying For A Grexit?

The thought process behind the ECB plan is that it will help stave off deflation, lower borrowing costs and weaken the euro so that exports can increase. The U.S. took the same path several years ago and it sent stocks to new all-time highs. The Japanese are in the midst of a similar program – with mixed results for equities – but has already greatly devalued their currency, the yen.

WisdomTree European Hedge Equity

The WisdomTree Inter Hedged Eq Fund (NYSE: HEDJ) provides exposure to European equities, while at the same time shorting the euro. The top three holdings in the ETF include:

  • Anheuser Busch Inbev SA (ADR) (NYSE: BUD) at 6.9 percent
  • Telefonica Brazil SA (ADR) (NYSE: VIV) with a 5.7 percent holding
  • Unilever N.V. (ADR) (NYSE: UN) coming in at 4.8 percent

HEDJ is up 8 percent over the last 12 months and up 4 percent over the last 6 months. The expense ratio is 0.58 percent.

iShares Currency Hedge MSCI EMU

The iShares Trust (NYSE: HEZU) is a hedged version of iShares other European ETF, the iShares MSCI EMU Index (ETF) (NYSE: EZU). The ETF's top holdings are EZU along with 10 short positions on the euro.

The top holdings for EZU include:

  • Bayer AG (ADR) (OTC: BAYRY) at 3.1 percent
  • Sanofi SA (ADR) (NYSE: SNY) making up 2.9 percent of the ETF
  • Total SA (ADR) (NYSE: TOT) coming in at 2.9 percent as well.

HEZU is up 8 percent since its inception on July 9, 2014. The ETF has an expense ratio of 0.51 percent.

Related Link: European Markets In For A Roller-Coaster Weekend

Vanguard FTSE European ETF

The Vanguard FTSE Europe ETF (NYSE: VGK) follows 527 publicly traded companies across 11 European countries. The United Kingdom at 32.7 percent, France at 13.8 percent and Switzerland with 13.8 percent are the most heavily weighted countries in the portfolio.

The top individual holdings include:

  • Nestle SA at 2.8 percent
  • Royal Dutch Shell plc (ADR) (NYSE: RDS-A) coming in at 2.6 percent
  • Novartis AG (ADR) (NYSE: NVS) with a 2.6 percent holding

VGK is down 10 percent over the last 12 months and down 10 percent over the last six months. The ETF has an expense ratio of 0.12 percent.

The performance difference is clearly evident for the hedged ETFs versus the unhedged VGK. Over the last six months, HEDJ is up 4 percent as VGK has lost 10 percent. The 14 percent difference over six months is a major outperformance, possibly due to the fall in the euro during that time frame. The Guggenheim CurrencyShares Euro ETF (NYSE: FXE) is down 16.5 percent in the last six months, which explains the better returns for the hedged ETFs that are short the euro.

Posted-In: Bank of Japan European Central BankSector ETFs Specialty ETFs Eurozone Markets Trading Ideas ETFs Best of Benzinga


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