WisdomTree launches currency-hedged South Korean equity ETF

Nov 11th, 2013 | By | Category: Equities

WisdomTree, a US-based provider of exchange-traded funds, has launched its sixth currency-hedged equity ETF – the WisdomTree Korea Hedged Equity ETF (DXKW).

WisdomTree launches currency-hedged South Korean equity ETF

South Korea is an advanced emerging economy with strong capabilities in shipping, technology and automobiles.

Listed on the Nasdaq Stock Market, the fund seeks to provide exposure to South Korean equity markets while hedging fluctuations in the exchange rate between the US dollar and South Korean won.

The fund is linked to the WisdomTree Korea Hedged Equity Index, a currency-hedged index that consists of profitable companies incorporated in South Korea and traded on the Korean stock exchange that derive less than 80% of their revenue from sources in South Korea.

By excluding companies that derive 80% or more of their revenue from South Korea, the index is tilted towards companies with a more significant global revenue base.

South Korea is an advanced emerging economy with strong capabilities in shipping, technology and automobiles. In 2012, South Korea’s gross domestic production (GDP) was nearly twice that of many developed nations including Switzerland, Sweden and Norway, and almost 60% of the country’s GDP was from exports.

Jeremy Schwartz, WisdomTree Director of Research, said: “For any exporter-focused country, a strengthening currency can be a competitive disadvantage in the global market place. In the last 12-months, as Japan’s policy of ‘Abenomics’ has resulted in a depreciating Japanese yen, South Korea’s won has appreciated significantly – 20% versus the yen. As a result, South Korea’s exporters have faced tougher competition from their revitalized Japanese counterparts.

“Given their significant overlap in export products, we believe South Korea is the country most impacted by the yen’s weakening. If the South Korean won declines relative to the yen – and for that matter, the US dollar – we believe this would be a boon for South Korea’s equities.

“We believe DXKW can offer exposure to the growth potential of South Korea’s exporters while helping to protect US investors from potential declines in the Korean won against the US dollar.”

“Looking back over the last 20 years, there were two periods in which the Korean won experienced significant depreciation relative to the US dollar. First during the Asian financial crisis and again during the global financial crisis, the won depreciated approximately 54% and 41%, respectively. These episodes added considerable volatility to the local equity market.”

The new fund provides dollar-based investors a means of isolating the performance of South Korean equities from the performance of the won, thus helping to reduce the overall volatility of investing in the market.

The fund has an expense ratio of 0.58%.

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