Source launches exporter-focused Eurozone and Japan ETFs

Jun 23rd, 2015 | By | Category: Equities

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Source, one of the largest providers of exchange-traded funds in Europe, earlier this month launched two new ETFs focused on eurozone and Japanese exporters, with listings on LSE and XETRA.

Source announce exporter focused Eurozone and Japan ETFs

Peter Thompson, Source President.

The Source Stoxx Eurozone Exporters UCITS ETF (EZEX GY) and the Source Stoxx Japan Exporters UCITS ETF (JPEX LN) are based on the new Stoxx International Exposure Indices which provide investors exposure to companies that generate a substantial portion of their revenue outside their domestic market.

The Stoxx International Exposure Indices were designed for market participants looking for exposure to companies which will likely benefit from currency devaluation, namely exporters. This deviates from traditional market capitalisation-based weighting schemes which are often dominated by companies which earn the majority of their revenues domestically. In Japan, for example, the Stoxx International Exposure methodology increases the foreign revenue exposure of the index from 33% to 65%.

The indices increase the foreign revenue exposure of the parent indices by adjusting constituent weightings based on the revenue generated outside the company’s domestic market. They are constructed from companies with at least 50% of their revenue earned abroad and are then weighted by the product of their market capitalisation and the percentage of international revenue.

For investors who believe that quantitative easing policies in Europe and Japan are likely to devalue currencies and boost foreign revenues for exporters, this suite of ETFs may offer the appropriate equity market exposure. Both ETFs are available in currency-hedged versions, providing investors the option to offset the risk that euro and yen devaluation could diminish equity returns in their home currency.

Peter Thompson, President of Source, commented: “We are delighted to have worked with Stoxx to develop these innovative new indices that will enable investors to construct their portfolios more precisely by using revenue-based indexing. We identified a particular need from our investors to gain more targeted exposure to the topical themes of currency devaluation and quantitative easing; hence these indices focus precisely on those companies in the Eurozone and Japan that have a majority of non-domestic revenues. This could be especially valuable now with both the ECB and Bank of Japan using QE, offering the potential for weaker currencies that is likely to boost exporters’ earnings.”

The currency-hedged version of the Source ETFs bare similarity to the WisdomTree Europe and Japan Hedged ETFs, which also weight constituents based on international revenues. However, the Source Stoxx Japan Exporters ETF requires constituents to have a higher proportion of international revenues, over 50%, whereas WisdomTree requires 20% or more for their Japan Hedged ETF.

The Eurozone ETF is being launched on XETRA in EUR, with a USD-hedged version on the LSE (EZXU LN), both charge an annual management fee of 0.35% with a 0.15% swap fee for the USD hedged version. The Japan ETF is being launched on the LSE, with a EUR-hedged version available on XETRA (JEXE GY), again both charge a 0.35% management fee with swap fees of 0.05% and 0.2% respectively. 

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