WisdomTree expands currency-hedged lineup with “Strong Dollar” and “Weak Dollar” ETFs

Aug 12th, 2015 | By | Category: Equities

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WisdomTree, a leading provider of currency-hedged exchange-traded funds, has launched two new ETFs on the NYSE Arca. The WisdomTree Strong Dollar US Equity Fund (USSD) and the WisdomTree Weak Dollar US Equity Fund (USWD) invest solely in US-listed equities but each offers different exposure to changes in the strength of the US dollar. These new funds are an innovative extension to WisdomTree’s already-extensive range of currency-hedged ETFs.

WisdomTree expand suite of currency-hedged ETFs with Strong Dollar and Weak Dollar launches

WisdomTree is a leading currency-hedged ETF provider.

According to WisdomTree, the funds provide “a way to implement a tactical view on the direction of the dollar within US equity exposures, and the capacity to complement existing US equity exposures that may emphasize other sensitivities, while maintaining a broad diversification.”

The Strong Dollar fund includes only companies with significant revenues (over 80%) generated within the US, potentially making the fund less vulnerable to a strengthening dollar. Further to this, the fund weights its final constituents based on the historic correlation between the returns of the firm and the return on the US Federal Reserve Trade-Weighted Dollar Index, favouring those firms with higher correlations.

The fund is highly diversified with 269 holdings of which the current top constituents include Verizon (1.5%), AT&T (1.4%) and Comcast (1.2%). There is a major exposure to the financial sector (25.0%), followed by the consumer discretionary (20.5%), utilities (14.0%), healthcare (10.9%) and industrials (10.9%) sectors. The total expense ratio is 0.33%.

The Weak Dollar fund only includes those firms earning at least 40% of revenue from outside the US to be eligible for inclusion in the ETF. These export-focused constituents are well placed to benefit from weakness in the greenback. Likewise, the weighting methodology takes into account the correlation between company returns and the return on the US Federal Reserve Trade-Weighted Dollar Index, favouring those firms with lower correlations.

The fund has 250 holdings of which the main exposures are Apple (1.9%), General Electric (1.3%) and Exxon Mobil (1.2%). There is currently sector exposure to the information technology (24.4%), healthcare (19.6%), industrials (14.6%), consumer discretionary (12.1%) and materials (9.1%) sectors. The total expense ratio is also 0.33%.

Currently the dollar is relatively strong compared to other currencies. The Bloomberg Dollar Spot Index, a representation of the strength of the dollar against ten major currencies including the euro, yen, Canadian dollar, Mexican peso, British pound, Australian dollar, Swiss franc, South Korean won, Chinese renminbi, and Brazilian real is less than 2% below its ten-year peak. This measure of dollar strength is particularly useful as the weightings of the constituent currencies are chosen based on proportional trade flows and FX liquidity. These weightings are re-evaluated annually.

The dollar may remain strong in the medium term, boosted both directly through an expected upcoming interest rate rise, as well as indirectly through continual loose monetary policy in other parts of the world.

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