Small-Cap European ETF Opens New Opportunities

Following the success of their first hedged European large-cap ETF, WisdomTree Investments, Inc. WETF has launched its second hedged European ETF and fourth ETF with European exposure.

The WisdomTree Europe Hedged SmallCap Equity Fund EUSC will be very similar to its larger peer, the WisdomTree Europe Hedged Eq Fund HEDJ; however, it will concentrate solely on the small-cap portion of the equity market. WisdomTree believes small-cap stocks are much more levered to the potential future European growth.

Appeal Of Hedged European ETFs

The outperformance in the last year is clearly evident, as the hedged European ETFs have been able to avoid the currency fluctuations as the euro hit a new multi-year low.

In the last 12 months, HEDJ is up 15 percent as the unhedged iShares S&P Europe 350 Index (ETF) IEV is down 7 percent. The struggles of the euro has removed all the gains from the rise of the European equities in the ETF.

In Context

With the European Central Bank (ECB) vowing to do whatever it takes to boost Europe's economy, the end result could be a euro at parity with the U.S. dollar. At the same time, the stimulus could boost European equities just as the Federal Reserve did in the U.S. This combination calls for the use of a hedged ETF to eliminate a potentially weak euro.

As investors look to increase exposure to European equities and are willing to take on more risk, the small-cap asset class could be beneficial.

Related Link: Small-Cap ETFs Set To Outperform, Again

EUSC Profile

EUSC is made up of 209 small-cap European companies across 10 sectors and 10 different countries. Industrials are the most heavily weighted at 27 percent, followed by consumer discretionary at 17 percent. The countries with the highest exposure are Italy at 19 percent and France at 18 percent.

The top individual holdings include:

• BPOST SA BPOSYBPOSF at 2.2 percent
• ELISA OYJ UNSP ADR ELMUY making up 2.1 percent
• FREENET AG FRTAF coming in at 1.8 percent
• Mediolanum SPA (MED), which trades on the BIT exchange, at 1.7 percent

EUSC opened up at 24.95 on March 4 and has an expense ratio of 0.59 percent.

Along with exposure to a region that is poised to boost their equity market, the ETF will provide diversity to a typical portfolio. The top holdings are likely names most investors have never heard of and most probably do not have in their portfolio.