The WisdomTree Europe Hedged Equity Index, which HEDJ is designed to track, uses a rules-based process for selecting and weighting securities while managing the euro risk.
Universe comprised of the largest dividend-paying companies from the WisdomTree DEFA Index (broad developed world ex-U.S.) that are traded in euros, with a minimum market capitalization of $1 billion and with at least 50% of revenues derived from outside Europe.
Local Market Europe Equity Return
Hedged Equity Return
The Fund will implement the currency-hedging strategy by entering into one-month forward currency contracts2 each month and rebalancing at month-end.
1Dividend Stream: Indicated dividends per share x shares outstanding, added up for all constituent firms within the WisdomTree Dividend Index. Indicated dividends refers to the dividends per share that a company has announced it will pay in the coming year.
2One-month forward currency contract: An agreement between two parties to exchange two currencies at a given exchange rate thirty days in the future. This guarantees an exchange rate on a given date.
In recent years European equities have been volatile. Yet, there is little question that shares of the world’s leading exporters may be attractively priced and that the earnings derived from their exports may be poised to increase. Of course, European equities are far from being without risk1, and there are many strategies that may mitigate the risk of an equity exposure, but we believe that hedging2 the currency performance of an international equity exposure could be of special interest. Over the past 1-, 3-, 5- and 10-years (as of 12/31/2013), this potential volatility reduction has been apparent through the reduced beta3 of European Equities in Local Currency vs. that of European Equities in U.S. dollars.
Source: Bloomberg, Zephyr StyleADVISOR
* European Equities – Local Currency: MSCI EMU Local Currency Index, in which returns are measured in euros.
** European Equities – U.S. Dollars: MSCI EMU Index, in which returns are measured in U.S. dollars.
*** U.S. Equities – S&P 500 Index.
Past performance is not indicative of future results. You cannot invest directly in an index.
1Risk: Also standard deviation or volatility, a measure of the dispersion of actual returns about an average over a specified period. Larger numbers indicate a greater chance of being farther from that average.
2Hedging: Applying strategies meant to mitigate the impact of currency movements on equity returns.
3Beta: Measure of the volatility of an index or investment relative to a benchmark. A reading of 1.00 indicates that the investment has moved in lockstep with the benchmark; a reading of -1.00 indicates that the investment has moved in the exact opposite direction of the benchmark.
You drive their cars and wear their clothes. Not only are many of the world's leading companies—and brands you know—headquartered in Europe, but they are truly global companies that generate the bulk of their revenue from exporting to countries outside Europe.
Below are the top 10 holdings in the WisdomTree Europe Hedged Equity Fund (HEDJ).
Sources: S&P, WisdomTree, Bloomberg. Holdings subject to change.
When investing internationally, you face more than simply the volatility of your securities—you also face the volatility of the local currency. Even when your investment is in U.S. dollars, international companies deal in other currencies, which can impact your returns. Sometimes these movements can help your investments, and sometimes, they can hurt them. Hedging exposure to the euro can help mitigate the currency risk.
Source: MSCI for MSCI EMU Index and the MSCI EMU Local Currency Index
Past performance is not indicative of future results.
What if you could separate Europe from the euro?
WisdomTree Chief Investment Strategist Luciano Siracusano discusses the current situation in Europe and how hedging exposure to the euro could impact investments in European equities.