The year has turned out to be pretty good for the European ETF industry, as the very first month saw record inflows into European ETFs. Investors were seen to be shifting their assets from U.S. to European equities, given the divergent monetary policies in these two economies. While the Fed has ended its bond buying program and is expected to start raising rates soon, the European Central Bank (ECB) is pursuing aggressive quantitative easing (QE) measures to inject optimism into the continent.
The ECB has begun its bond buying program on Monday, which it had announced toward the end of January. The ECB is expected to pump €1.14 trillion ($1.16 trillion) into the sagging Euro zone over the next one and half years. It plans to buy €60 billion worth government bonds, debt securities issued by European institutions and private sector bonds per month through September 2016.
Mr. Draghi believes that through the asset purchase program “firms will be encouraged to increase investment, bringing forward the economic recovery.”
In fact, the Euro zone economy is gradually gaining momentum having expanded 0.3% in the final quarter of last year. Business activity was also at a seven-month high in February buoyed by robust domestic demand. Moreover, cheap oil, a weak euro and easy money flow are expected to further provide a boost to Europe’s economy (read: Bulls Riding Europe with These Top Ranked ETFs).
Also, the ECB, which kept interest at record lows just above zero, has recently increased its growth forecast for the European economy this year to 1.5% from its earlier expectation of 1%. For 2016, the ECB expects the European economy to expand 1.9%, up from its previous forecast of 1.5%.
The aggressive quantitative easing program has propelled European equities to multi-year highs and has spread optimism among investors who are now putting money into European funds in anticipation of a further surge. However, the stimulus program has pushed the euro down to near 12-year lows against the dollar. Further, the strengthening U.S. economy and the prospect of rising interest rates sometime in mid 2015 are driving the U.S. dollar upward, thereby resulting in depreciation of the euro against the USD (read: 3 ETFs to Watch on Rising Rates).
Given this, some of the European hedged equity funds have seen good inflow of assets in the past few days. Below we have highlighted three such funds in details, which are seeing a surge in interest. Investors can keep these products on their radar to enjoy further gains if they
continue to rise.
WisdomTree Europe Hedged Equity (HEDJ)
The fund has been quite popular among investors this year and in fact has not only been the top asset gainer in the ETF industry in the past one week, but also the top in the year-to-date frame. The fund, with an asset base of around $14.5 billion and average daily volume of about 4.5 million shares, has accumulated $1.3 billion in the past one week and $7.5 billion in the year-to-date frame (read: Guide to European Hedged ETF).
The fund tracks the WisdomTree Europe Hedged Equity Index holding 129 securities. Sector-wise, it is pretty well spread out across a number of sectors with consumer staples, consumer discretionary, industrials, health care, and financials taking double-digit exposure each. Among countries, Germany and France take the top two spots with a combined allocation of nearly 50%, while Spain and the Netherlands round off the next two spots. The expense ratio came in at 0.58%. The fund returned about 18.7% in the in the year-to-date period and has a Zacks ETF Rank of 1.
iShares MSCI Germany (EWG)
Germany is the largest economy of Europe and long considered the region’s growth engine. The German economy has seen a surge in inflows this year. The product has garnered $261 million in assets in the past one week (read: ETF Asset Flow Roundup: Europe & Gold Gain, U.S. Lags).
The fund tracks the MSCI Germany Index, managing an asset base of $5.9 billion and has a daily average trading volume of more than 5.5 million shares. The fund holds a basket of 54 stocks charging 49 basis points as fees. EWG spreads its assets well across various sectors with double-digit exposure to consumer discretionary, financials, health care, materials and industrials. The fund has added 5.8% in the year-to-date frame.
Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU)
This product tracks the MSCI Europe US Dollar Hedged Index, which provides exposure to the European equity market and hedges the euro to the U.S. dollar. The fund holds 446 securities in its basket, which is widely spread out across each component with none holding more than 3% of assets. United Kingdom takes the top spot at 31.6% while Switzerland, France and Germany round off the next three spots.
From a sector look, financials accounts for the largest share at 22.6% followed by consumer staples (13.9%) and Health Care (13.6%). The fund has an asset base of $1.6 billion and has seen inflows of $120.58 million in the past one week. It charges 45 bps in fees per year and has returned 11% this year.
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