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Many times, ETF issuers catch fire with a particular product type and almost become synonymous with a given category. For the only pure play ETF issuer that is traded on the U.S. market, WisdomTree , that product type uses a currency hedged strategy.
WisdomTree was a forerunner for bringing this approach to the masses, but this strategy was largely passed over for quite some time when it was first introduced. However, with the advent of Abenomics in Japan, and a ‘whatever it takes’ monetary policy in Europe, a currency hedging strategy suddenly made a lot more sense.
Investors flooded into currency hedged products as a result, and WisdomTree’s assets swelled. In fact, according to ETF.com’s fund flows data tool, from the start of 2013 to July 1st, 2015, WisdomTree’s two key products, the Europe Hedged Equity Fund (HEDJ - Free Report) and the Japan Hedged Equity Fund (DXJ - Free Report) , combined to bring in over $33 billion in assets. This was a stark contrast to what the funds did for the entire time frame before 2013, as the two combined to bring in just over one billion, including a paltry $30 million for HEDJ.
The incredible success of these two funds pushed both to the top of WisdomTree’s asset charts. But has this trend held true today and should investors be concerned about this dependency going forward? This week’s Dutram Report takes a closer look at this topic, and what investors thinking about WETF stock need to know about how this could impact WisdomTree shares in the future too.
HEDJ and DXJ in Focus
Since those glory days a few years ago, things haven’t been as great for flows into HEDJ and DXJ. In fact, in the past 18 months, the two have seen outflows approaching $11 billion, and haven’t added assets—as a duo—in any of the last five quarters.
This makes a lot of sense when you consider what the dollar has done in that time frame, and especially in the past year. If we use UUP as a guide, we see that the U.S. currency has been on a downward slope for pretty much all of 2017, and has lost about 10% against the basket of currencies that it tracks on a year-to-date basis.
The question then becomes, why buy hedged products in this type of environment? Hedging is supposed to protect you from a declining foreign currency, but this obviously hasn’t been much of a concern as of late. This situation makes competing, unhedged ETFs such as EWJ for Japan, or EZU for Europe, a lot more compelling, acting as another headwind for WisdomTree.
Diversification
This might not be such a problem if WisdomTree wasn’t so incredibly dependent on HEDJ and DXJ for assets. The two combine to make up roughly 40% of WisdomTree’s assets, and have as much under management as 83 other WisdomTree funds combined.
Shares of WisdomTree have struggled as a result of the outflows and lower level of interest in their top products lately. But WisdomTree is trying to expand and diversify its product base, and it has seen some initial success in this regard. These ‘core/strategic’ funds now account for nearly 48% of assets, up from Q1 2016 when they accounted for just 35%.
However, this focuses on dividend-centric products such as DGRW or DON, and while these are fine funds, they don’t have that explosive potential that we saw in the currency hedged market a few years ago. It just goes to show you how crucial timing can be, and that trends don’t always last forever in the ETF world.
For better or worse, WisdomTree is tied to what happens with its two marquee products. This was great a few years ago, but those trends have been crumbling, and don’t appear likely to turn around any time soon.
But for more on some of the other key issues facing WisdomTree and their attempt at diversification, make sure to listen to the podcast for additional insights!
Bottom Line
But what do you think about WETF and currency hedging? Make sure to write us in at podcast @ zacks.com or find me on Twitter @EricDutram to give us your thoughts on this, or anything else in the fund market.
Image: Bigstock
Will a Weak Dollar Doom WisdomTree Stock?
Many times, ETF issuers catch fire with a particular product type and almost become synonymous with a given category. For the only pure play ETF issuer that is traded on the U.S. market, WisdomTree , that product type uses a currency hedged strategy.
WisdomTree was a forerunner for bringing this approach to the masses, but this strategy was largely passed over for quite some time when it was first introduced. However, with the advent of Abenomics in Japan, and a ‘whatever it takes’ monetary policy in Europe, a currency hedging strategy suddenly made a lot more sense.
Investors flooded into currency hedged products as a result, and WisdomTree’s assets swelled. In fact, according to ETF.com’s fund flows data tool, from the start of 2013 to July 1st, 2015, WisdomTree’s two key products, the Europe Hedged Equity Fund (HEDJ - Free Report) and the Japan Hedged Equity Fund (DXJ - Free Report) , combined to bring in over $33 billion in assets. This was a stark contrast to what the funds did for the entire time frame before 2013, as the two combined to bring in just over one billion, including a paltry $30 million for HEDJ.
The incredible success of these two funds pushed both to the top of WisdomTree’s asset charts. But has this trend held true today and should investors be concerned about this dependency going forward? This week’s Dutram Report takes a closer look at this topic, and what investors thinking about WETF stock need to know about how this could impact WisdomTree shares in the future too.
HEDJ and DXJ in Focus
Since those glory days a few years ago, things haven’t been as great for flows into HEDJ and DXJ. In fact, in the past 18 months, the two have seen outflows approaching $11 billion, and haven’t added assets—as a duo—in any of the last five quarters.
This makes a lot of sense when you consider what the dollar has done in that time frame, and especially in the past year. If we use UUP as a guide, we see that the U.S. currency has been on a downward slope for pretty much all of 2017, and has lost about 10% against the basket of currencies that it tracks on a year-to-date basis.
The question then becomes, why buy hedged products in this type of environment? Hedging is supposed to protect you from a declining foreign currency, but this obviously hasn’t been much of a concern as of late. This situation makes competing, unhedged ETFs such as EWJ for Japan, or EZU for Europe, a lot more compelling, acting as another headwind for WisdomTree.
Diversification
This might not be such a problem if WisdomTree wasn’t so incredibly dependent on HEDJ and DXJ for assets. The two combine to make up roughly 40% of WisdomTree’s assets, and have as much under management as 83 other WisdomTree funds combined.
Shares of WisdomTree have struggled as a result of the outflows and lower level of interest in their top products lately. But WisdomTree is trying to expand and diversify its product base, and it has seen some initial success in this regard. These ‘core/strategic’ funds now account for nearly 48% of assets, up from Q1 2016 when they accounted for just 35%.
However, this focuses on dividend-centric products such as DGRW or DON, and while these are fine funds, they don’t have that explosive potential that we saw in the currency hedged market a few years ago. It just goes to show you how crucial timing can be, and that trends don’t always last forever in the ETF world.
For better or worse, WisdomTree is tied to what happens with its two marquee products. This was great a few years ago, but those trends have been crumbling, and don’t appear likely to turn around any time soon.
But for more on some of the other key issues facing WisdomTree and their attempt at diversification, make sure to listen to the podcast for additional insights!
Bottom Line
But what do you think about WETF and currency hedging? Make sure to write us in at podcast @ zacks.com or find me on Twitter @EricDutram to give us your thoughts on this, or anything else in the fund market.
But for more news and discussion regarding the world of investing, make sure to be on the lookout for the next edition of the Dutram Report (each and every Thursday!) and check out the many other great Zacks podcasts as well!
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