This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

ETF Takes Out Currency Variable

Stocks in this article: HEDJ DWM EFA

NEW YORK ( TheStreet) -- Companies that sell exchange traded funds occasionally release evolutionary products. That may be the case with the recently listed WisdomTree International Hedged Equity Fund (HEDJ), which protects against currencies.

When a U.S.-based investor buys a foreign stock or fund, he also is buying the local currency. If that currency rises against the dollar, he gets a boost on returns. An advancing U.S. currency puts a drag on performance. The WisdomTree International Hedged Equity Fund takes that variable out of the equation. That's beneficial, as for most of the past decade, the dollar has weakened.

The WisdomTree International Hedged Equity Fund has the same equity exposure as the WisdomTree DEFA Fund (DWM). The DEFA Fund is essentially the same as the iShares MSCI EAFE Index Fund (EFA), with the difference being that the WisdomTree fund is weighted by dividends, and the iShares Fund is weighted by market value. In the hedged fund, there is the hedging of the currency on top of the dividend weighting.

The hedge is accomplished with forward contracts that neutralize the movement of the currency proportionally to the country weights of the equities in the fund. The U.K. is the largest country in the fund, at 20%, so the currency allocation is targeted to be the same. Based on the back-test of the ETF, the difference between hedging and non-hedging can be significant. The average annualized return for the DEFA Fund for three years has been minus 1.81%, 8.03% for five years and 6.78% for 10 years. With currency hedging, those numbers would have been minus 4.51%, 6.26% and 4.55%, respectively. Because the dollar has been falling, the hedged version of the index didn't get that benefit.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs