Tag Archives: iShares MSCI EMU ETF

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Wisdom: Is $HEDJ The New Vogue Trade?

Below extract courtesy of a.m. edition of “Sight Beyond Sight”, the global macro trading commentary published by Stamford, CT-based macro strategy think tank Rareview Macro LLC.

“…For most of the second half of the year we have seen a surging dollar, and a falling euro.  Nothing seems to be coming that will disrupt that.

Now a lot of US investors have asked why the WisdomTree Europe Hedged Equity ETF (symbol: HEDJ) performance has been sub-optimal. Specifically, why isn’t this “strong dollar/weak euro” play not playing out much like last year’s Japan trade (strong dollar/ weak yen) as we saw with WisdomTree Japan Hedged Equity (DXJ)?

As a reminder, DXJ is a portfolio of Japanese stocks with a currency hedge overlay (i.e. 100% of assets is hedged). So HEDJ is the European version of DXJ. The underperformance therefore is simply stock-related.

For example, HEDJ is a basket of European stocks (i.e. 100% of assets is FX hedged). The underlying basket is a Wisdometree dividend weighted basket. It does not quite have the same weightings as the iShares MSCI EMU ETF (symbol: EZU) which is market cap weighted & large cap equivalent or the iShares Europe ETF (IEV) or any other standard index, but it does have a very high correlation.

If you compare HEDJ vs. EZU (i.e. use Bloomberg COMP function, HEDJ in line one and EZU in line 2 and then change the currency next to EZU to EUR instead of USD) you will see performance come back in line with HEDJ as it displays the effect of the FX hedge.

rareview macro nov 24

So HEDJ is working exactly the way it should given how it is constructed and using HEDJ to get long European stocks and a weaker EUR is correct instrument for that view.

So the question becomes, how do you gain using HEDJ? more

ETFs Soaring as Investors Again Embrace European Stocks

etf-logo-finalCourtesy of Tom Lydon, ETF Trends

Once considered a toxic destination for investors, Eurozone ETFs have come roaring back to life over the past few months due to improved economic data, falling bond yields and attractive valuations. Over the past 90 days, investors have been treated to a 7% pop from the Vanguard FTSE Europe ETF (NYSEArca: VGK), an ETF that comes with a solid 5.2% trailing 12-month yield.

The fact that the European Union office has statistical reported a growth trend after 18 months of recession is good news for investors. The EU recently showed GDP growth of 0.3%, a sign the region is breaking free from the clutches of the longest recession in EU history. [Fundamentals Looking up for Europe ETFs]

Although Europe ETFs like VGK and the iShares Europe ETF (NYSEArca: IEV), which is up 6.7% in the past three months have recently been in rally mode, more upside could be on the way. In the current quarter, the MSCI Europe Index is up 7.5% compared to a 2.7% gain for the MSCI USA Index, according to Morgan Stanley Wealth Management.

“In our view, the renewed interest in Europe likely reflects two factors. First, valuations and total returns are at the lower end of their long-term ranges, particularly versus those of the US. Second, the news suggests Europe has stabilized,” wrote Morgan Stanley European equity analyst Krupta Patel.

Investors are not just buying into the Europe recovery theme, they are buying Europe ETFs. While August was a dismal month for ETF outflows, particularly from U.S. equity funds, funds with a heavy dose of Europe fared much better. VGK hauled in $1.6 billion last month while the iShares MSCI EMU ETF (NYSEArca: EZU) brought in $974 million. [Four ETFs for the Eurozone Recovery].  For the remainder of the article from ETFtrends.com, please click here