State Street Global Advisors, a unit of State Street and the third largest US issuer of exchange-traded funds, recently jumped onto the currency-hedged ETF bandwagon with the debut of the SPDR Euro STOXX 50 Currency Hedged ETF (HFEZ).
The new fund comes with low fees, possibly to compensate for the delay in a niche that is dominated by WisdomTree, iShares and DB X-trackers euro-hedged funds.
HFEZ provides euro-neutral exposure in an index of the 50 most liquid stocks from 12 countries across the Atlantic and is the first hedged product from State Street. It’s basically the currency-hedged version of the $4.9 billion SPDR Euro STOXX 50 ETF (FEZ).
Currency-hedged ETFs have witnessed higher investor money inflows after the monetary policies of global central banks started to diverge this year. While loose monetary policies have lifted asset prices in Europe and Japan, they have at the same time weighed on the euro and the yen.
That’s the perfect moment for the launch of a currency-hedged ETF as it effectively cushions the effects of a falling foreign currency while calculating the fund’s performance. Un-hedged foreign currency ETFs are effectively “long” on the currency and the stocks underling the fund.
HFEZ strips out the impact of a falling euro via euro-denominated forward contracts. It can also buy the shares of FEZ to effect its exposure into the Euro STOXX 50 Index.
The underlying index of HFEZ is well-diversified with no security contributing more than 4.89 percent of the total weight. Sanofi, Bayer AG and Total SA are the top three holdings of the index.
The fund is overweight in financials (26.90 percent), while consumer discretionary (11.12 percent), healthcare (10.79 percent), consumer staples (10.78 percent) and industrials (10.78 percent) all get double-digit allocations.
Countrywise, France gets the top billing (35.06 percent), followed by Germany (31.34 percent) and Spain (12.85 percent). Companies from Netherlands (7.90 percent), Italy (7.86 percent), Belgium (3.89 percent) and Finland (1.00) also find representation in the underlying index.
HEFZ’s main USP is its low expense ratio. For the next 17 months or so – till January 2017, the new fund will charge 0.32 percent, after which fees will rise to 0.61 percent.
The industry-leader, the $19.8 billion WisdomTree Europe Hedged Equity Fund (HEDJ), charges $0.58 percent while the number-two, the Deutsche X-Trackers MSCI Europe Hedged Equity Fund (DBEU) charges 0.45 percent in annual fees.
Disclosure: No holdings
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