WisdomTree, a leading issuer of currency-hedged ETFs, has cross-listed its US dollar-hedged Japan and European equity ETFs on the SIX Swiss Exchange.
WisdomTree Europe has cross-listed their flagship Japan and Europe currency-hedged equity ETFs on the SIX Swiss Exchange.
The WisdomTree Japan Equity UCITS ETF – USD Hedged (DXJ) and WisdomTree Europe Equity UCITS ETF – USD Hedged (HEDJ) provide exposure to Japanese and developed market Eurozone equities respectively while hedging fluctuations between their respective home currencies, the euro and yen, and the US dollar.
With an in-built currency hedge, the ETFs deliver higher returns than similarly benchmarked unhedged ETFs when their respective home currencies are weakening against the US dollar. Considering the large monetary stimulus policies in place in Japan and the eurozone, and the prospect of US interest rate rises, both regions’ currencies could continue to weaken against the US dollar. Investors must of course be mindful, however, that in the event that the yen or euro strengthen against the US dollar, the relevant ETF will underperform its unhedged equivalents.
Commenting on the listings, Viktor Nossek, WisdomTree Europe’s Director of Research, said: “Continental European and Japanese equity markets continue to benefit from the ECB’s and BoJ’s quantitative easing programme, which has triggered the devaluation of the euro and the yen and is playing into the hands of export-oriented companies whose stock prices have risen on the back of it. HEDJ and DXJ are designed to offer investors exposure to European and Japanese exporters respectively, while seeking to offer protection against downside risk from the euro and yen depreciating relative to the US dollar. By hedging the potential for currency weakness as a result of QE, investors may more fully benefit from the bullish sentiment in European and Japanese equity markets driven by a QE-led environment.”
In order to select healthy companies which are best placed to benefit from weakening domestic currencies, both ETFs select and weight constituents based on dividends and favour companies who export. Using dividends as a weighting and selection method, as opposed to market capitalisation-weighting, emphasises good value companies who have the financial stability to pay dividends. By tilting exposure towards exporters or those companies which generate a significant portion of their revenues outside of their domestic market, the ETFs offer greater exposure to companies which stand to benefit most from weakness in their home currency.
The Japan equity ETF consists of dividend-paying companies that are incorporated in Japan, trade on the Tokyo Stock Exchange, and derive less than 80% of their revenue from Japan. It is based on the same index as the company’s flagship US-listed Japan equity ETF which has over $18.2bn in assets under management.
The Europe equity ETF is based on dividend-paying companies that are domiciled in Europe, are traded in euros and derive at least 50% of their revenue in from countries outside of Europe. The ETF is based on the same index as the company’s flagship US-listed ETF which has over $20bn in assets under management tracked against it.