So far, WisdomTree Investments (WETF) was the name of the game in the currency-hedged equities ETFs space.  However, the competition is intensifying for this renowned issuer. While ETF bellwether iShares of BlackRock’s (BLK) has already its presence in this field, another big issuer State Street (STT - Analyst Report) has forayed into this highly popular arena having launched its maiden currency-hedged product, SPDR EURO STOXX 50 Currency Hedged ETF (read:Can Anyone Match WisdomTree in Currency-Hedged ETFs?).  

HFEZ in Focus

The new ETF is the currency-hedged version of SPDR EURO STOXX 50 ETF (FEZ) and follows the EURO STOXX 50 Hedged USD Index. The index measures the currency-hedged performance of some of the largest companies across the components of the 20 EURO STOXX Supersector Indexes (see: all the European ETFs here).

Holding 50 securities in its basket, the index is pretty well spread out across components with no firm making up for more than 5.01% of assets. Total SA (TOT), Sanofi (SNY) and Bayer AG (BAYRY) are the top three holdings of the index. The ETF is skewed toward financials, as it takes about one-fifth of the total assets, while the other sectors receive modest exposure.

In terms of country allocations, France and Germany are leading with 35.30% and 32.09% share, respectively, followed by Spain (12.75%), Italy (7.67%), the Netherlands (7.58%), Belgium (3.64%) and Finland (0.97%). The fund’s net expense ratio is 0.32% annually.

Investors should note that FEZ is a pretty popular fund having amassed around $4.89 billion in assets while HFEZ has already accumulated around $4 million in assets within just 2 days of its launch.

How Does it Fit in a Portfolio?

The monetary policies in the developed world are following dual routes, with the U.S. economy on the verge of tightening and most other nations easing. Among all, the ECB’s launch of the QE program in the Euro zone this year along with rock-bottom interest rates deserve special mention. The Euro zone beat the U.S. economy with the first-quarter growth rate of 0.4% on the back of stimulus measures.

While this brightened the appeal for the European ETFs, investors are likely to experience the impact of adverse currency translation on their foreign holdings. This is because the QE is inflating Euro zone stock prices but it is weighing on the value of euro. This is especially true given the potential strength in the greenback, especially when the Fed hikes interest rates sometime in 2015.

Thus the product has adopted a currency hedging technique to ward off the sluggishness of the currency euro and safeguard investors’ returns from currency risk and make the launch well timed (read: Currency Hedged ETFs Top Q1 Asset Flows).
 

Competition

Focus on hedging technique in the Europe equities ETF space is no longer a fresh idea as the space already has some popular ETFs including the $19.8 billion-WisdomTree Europe Hedged Equity Fund (HEDJ), $2.6 billion-Deutsche X Trackers MSCI Europe Hedged Equity Fund (DBEU) and $1.37 billion-Currency Hedged MSCI EMU ETF (HEZU). Still, given FEZ’s sky-high acceptance among investors, its currency-hedged version HFEZ is expected to garner enough investor attention (read: Top Ranked Currency Hedged ETFs in Focus on Dollar Surge).