Hedge Against the Euro With This Fund

(Note: Second in a series on Europe-focused ETFs)

The WisdomTree Europe Hedged Equity Fund (HEDJ) seeks to provide exposure to the European equity market while hedging against fluctuations between the U.S. dollar and the euro.

The fund is hedged against the euro for U.S. investors. HEDJ targets dividend-paying firms, and, as the ticker implies, aims to remove euro currency exposure for the benefit of investors who are based in the United States. However, this exchange-traded fund (ETF) adds another twist: it screens to find publicly traded companies that obtain at least 50% of their sales from exports outside the Eurozone.

Such stocks should do well when the euro is weak or weakening. The WisdomTree currency-hedged equity funds use its currency-hedging strategies by entering one-month forward contracts each month and rebalancing at each month’s end.

In a weakening euro scenario, the hedge seeks to protect local gains from getting lost in the conversion back into U.S. dollars. In a strengthening euro environment, the fund is designed to safeguard against poor local returns and no foreign exchange gain. Effectively, HEDJ doubles down on its bet against the euro.

The fund charges a hefty fee, but it has had no trouble attracting assets. Consequently, it is one of the most liquid ETFs in the developed European space, making it ideal for short-term tactical trading. Investors may want to consider trading in the morning (New York time), when European markets are still open, for the best price.

HEDJ is heavily weighted in three countries; France, 32.35%; Germany, 30.10%; and the Netherlands, 18.75%. Its sectors are heavily weighted in five sectors: Consumer Non-Cyclicals, 22.16%; Consumer Cyclicals, 20.27%; Health Care, 15.58%; Industrials, 14.72%; and Basic Materials, 14.28%.

Source: StockCharts.com

The fund has $2 billion in assets under management, 103 holdings and an average 0.02% spread. It has a 1.52% distribution yield and an expense ratio of 0.58%, meaning that it is more expensive to hold in comparison to many other exchange-traded funds.

To sum up, HEDJ tracks an index of Eurozone dividend-paying companies that derive a majority of revenue from exports outside that zone. This fund could be beneficial for short-term tactical traders, but please exercise your own due diligence in deciding whether or not this ETF is suitable for your individual investing and portfolio goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.