BlackRock, the asset manager behind the iShares brand of exchange-traded funds, has unveiled the iShares MSCI EMU USD Hedged UCITS ETF (EMUU LN), a US dollar-hedged version of their Eurozone equities ETF. The fund has been listed on the London Stock Exchange and responds to investor demand for European equity exposure with hedged euro currency risk
Tom Fekete, Head of Product for iShares in EMEA.
The initiation of quantitative easing by the European Central Bank and the relative attractiveness of equity valuations in the region have made pan-European equity ETFs one of the industry’s most popular asset classes this year, attracting $42.1bn in new money during the first five months, according to BlackRock. Currency-hedged non-US ETFs saw $12.7bn of inflows over that same period.
European equities have delivered considerable returns over the past year with the iShares Eurozone ETF up over 67% in euro currency terms (as at July 6th). However, to the non-euro based investor this return was significantly dampened by currency weakness. iShares’ new ETF offering provides investors with US dollar-hedged exposure to euro denominated equities which should perform strongly if this trend continues.
Blackrock’s Tom Fekete, Head of Product for iShares in EMEA, commented: “Many investors are interested in the prospects for European stocks but want new ways to invest in a risk managed fashion. Europe has experienced a cyclical rebound from 2014 and equity valuations are attractive relative to those in the US. At the start of 2015, corporate earnings revisions in Europe turned positive for the first time since 2010.
He added: “One of the benefits of a currency-hedged ETF is that investors don’t have to maintain an independent hedge and can separate and control their currency risk. We already offer unhedged and Swiss franc-hedged ETFs based on this index, as well as funds based on other European equity indexes, and the launch reflects our desire to meet client demand for new types of product.”
The fund invests in mid- and large-cap companies across developed European Economic and Monetary Union countries and uses a US dollar hedge to counteract the impact of fluctuations in the euro. The fund uses a physical replication strategy, which means it purchases and holds the underlying equity securities, and has a total expense ratio of 0.38%.
This is iShares’ first US dollar-hedged European equities fund, which brings the provider’s currency hedged suite in Europe to 14 products. The fund comes up against direct competition from the UBS MSCI EMU hedged USD UCITS ETF (UC89 LN), which was launched in 2013 and has a total expense ratio of 0.33%. Similar products are available which provide US dollar-hedged exposure to European equities such as the Lyxor UCITS ETF EURO STOXX 50 Monthly Hedged C-USD (MSEU LN) which tracks the blue-chip Euro Stoxx 50 Index. Investors looking for a more focused play on euro weakness can look at the US dollar-hedged versions of the Source Stoxx Eurozone Exporters UCITS ETF (EZXU LN) or the WisdomTree Europe Equity UCITS ETF (HEDJ LN). Both of these funds invest in companies which generate a significant proportion of their revenues outside of Europe and as such stand to benefit should the euro weaken further.