WisdomTree, the New York-based fifth largest provider of exchange-traded funds (ETFs) that sponsors 51 different ETFs spanning asset classes and geographies, launched two new ETFs recently. The WisdomTree Japan Hedged SmallCap Equity ETF (DXJS) provides exposure to small cap Japanese stocks, while the WisdomTree United Kingdom Hedged Equity ETF (DXPS) provides exposure to UK equities.
The year 2013 has been fairly rewarding for WisdomTree due to growing investor interest in the firm’s pioneering products like active ETFs and fundamentally weighted ETFs. The immensely popular Japan Hedged Equity Fund (DXJ) is a case in point; the hedged yen ETF has raked in about $7.9 billion in fresh investments as advisors and investors lapped up Japanese equities.
Both of the new funds come at a critical time for the respective currencies versus the US dollar since both the Bank of Japan and the Bank of England are likely to continue with their quantitative easing measures while the US Fed is likely to start scaling down its monetary stimulus program later this year.
The diverging monetary policies pursued by the central banks would mean greater currency risk for US dollar-denominated investors who want exposure in these markets. However, the currency hedge built into these funds will allow investors to reduce and manage currency volatility more effectively.
The new Japan fund tracks the WisdomTree Japan Hedged SmallCap Equity Index, a currency-hedged benchmark that gives exposure to small cap Japanese stocks while providing protection against any fall in the Japanese yen.
To provide a currency hedge, the fund gets into futures and forward currency contracts that offset exposure in Japanese yen. Thus the fund looks to outperform un-hedged rivals when the yen is sliding and underperform when the yen is gaining ground and gives you exposure to performance that his solely attributable to stock price movements without the effect of currency fluctuations.
With no security consisting more than 0.75 percent of total assets, DXJS is well diversified and invests in stocks that have a minimum market capitalization of $100 million and trades on the Tokyo, JASDAQ or the Osaka stock exchanges.
DXJS has an expense ratio of 0.58 percent.
The UK fund tracks the WisdomTree United Kingdom Hedged Equity Index, a currency hedged benchmark that consists of companies incorporated in the UK but which derive less than 80 percent of their revenues from the domestic market. By excluding firms that derive more than 80 percent revenue from the domestic market, the index enlists firms that have a more diversified global revenue stream while providing hedge against sterling’s movement. Top holdings include Royal Dutch Shell, Vodafone, BP Plc, GlaxoSmithKline and HSBC Holdings Plc.
DXPS has annual expense ratio of 0.48 percent.
Disclosure: No holdings
Contact Ulli