WisdomTree Gets Dynamic With Currency-Hedged ETFs

WisdomTree Investments, Inc. WETF, the fifth-largest U.S. issuer of exchange-traded funds and the largest issuer of currency-hedged ETFs, expanded its lineup of those products on Thursday. The issuer introduced four new ETFs that have the ability to use complete or partial currency hedging depending on market environment.

The new WisdomTree ETFs are the WisdomTree Dynamic Currency Hedged International Equity Fund DDWM DDWM, WisdomTree Dynamic Currency Hedged International SmallCap Equity Fund DDLS DDLS, WisdomTree Dynamic Currency Hedged Europe Equity Fund DDEZ DDEZ and the WisdomTree Dynamic Currency Hedged Japan Equity Fund DDJP DDJP.

Currency Hedging And Long-Term Portfolios

Currency-Hedging Metrics

DDWM

DDLS

DDEZ, DDJP

“WisdomTree believes investors should not automatically take on currency exposure unless they have a positive view on it,” said the issuer in a statement.

“In fact, there is a strong case to be made that currency-hedged solutions provide a more attractive strategic and baseline exposure for long-term portfolios. In recent years, currency-hedged equities have gained traction as a way to neutralize currency risk and target local stock market returns,” according to WisdomTree.

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The new WisdomTree ETFs use three metrics to determine the funds' level of currency hedging: momentum, interest rate differential and value. For example, if the United States has higher interest rates than the country or region being targeted by one of the new ETFs, it makes sense for that fund to be close to or fully hedged.

Additionally, if a currency, on a purchasing parity basis, is overvalued relative to the dollar, the new ETFs can move closer to being fully hedged. Likewise, if the dollar is overvalued compared to other currencies, hedging becomes less useful.

The factors are equally-weighted and the new ETFs' hedged ratios are reset monthly. Record Currency Management Limited is WisdomTree's partner on the new ETFs.

“WisdomTree’s dynamic currency hedged strategy limits the need to make a call on currency by utilizing a data-driven, rules-based approach that assesses the picture of developed market currencies relative to the U.S. dollar on a monthly basis. This offers the potential for an attractive strategic and baseline exposure for long-term portfolios,” said WisdomTree Research Director Jeremy Schwartz in the statement.

The WisdomTree Dynamic Currency Hedged International Equity Fund devotes nearly 38 percent of its combined weight to British and Japanese stocks. That new ETF charges 0.35 percent per year, according to issuer data.

The WisdomTree Dynamic Currency Hedged International SmallCap Equity Fund, which holds small-cap dividend stocks based outside the United States and Canada, allocates about 55 percent of its combined weight to the UK, Japan and Australia. DDLS charges 0.43 percent per year.

The WisdomTree Dynamic Currency Hedged Europe Equity Fund is a dedicated eurozone ETF, meaning it does not hold UK or Swiss shares. Germany and France, the eurozone's two largest economies, combine for half that new ETF's weight. DDEZ and the WisdomTree Dynamic Currency Hedged Japan Equity Fund charge 0.43 percent per year.