On Thursday, WisdomTree Investments, Inc. (NASDAQ:WETF), the fifth-largest U.S. issuer of exchange-traded funds, expanded its suite of currency-hedged funds. Already one of the ETF industry's largest, the suite now includes newly debuted WisdomTree Global Hedged SmallCap Dividend Fund (BATS: HGSD).
New Fund On The Block
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The WisdomTree Global Hedged SmallCap Dividend Fund is the currency-hedged equivalent of the WisdomTree Global SmallCap Dividend Fund (BATS: GSD), which came to market last week.
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GSD follows the WisdomTree Global SmallCap Dividend Index (WTGS), which is a fundamentally weighted index that measures the performance of 1,000 largest small capitalization companies that rank within the bottom 5 percent of the WisdomTree Global Dividend Index by market capitalization, according to WisdomTree.
HGSD essentially follows the same index, because the new currency-hedged ETF features GSD as its only equity along with a currency-hedged overlay.
At its most recent Index screening date, September 30, 2015, the WisdomTree Global SmallCap Dividend Index had 1,000 qualifying constituentsa very broad cross-section of global small-cap dividend payers. This approach creates a deep investment capacity when compared with more restrictive and narrow active managers.
As an example, as of the screening date, the total market capitalization of the WisdomTree Global SmallCap Dividend Index was $1.25 trillion, and the top holding received less than 1 percent weight in the Index. As one test for capacity, it would take almost $11 billion in investments tracking the Index before they would hold more than 10 percent of the underlying market cap of any one holding, said WisdomTree in a note out Thursday.
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Investors, Look At Exposure
Investors opting for the currency protection offered by HGSD should still examine GSD's geographic exposure. The United States accounts for over 49 percent of the new ETFs' geographic weight with Japan, at 10.7 percent, being the only other country commanding a double-digit allocation. The UK, Canada and Australia combine for just over 15 percent of the ETFs' weights.
None of GSD's nearly 500 holdings command weights in excess of 0.81 percent, but the ETF is heavily allocated to just three sectors as financial services, industrials and consumer discretionary stocks combine for 62 percent of the new ETF's weight. GSD charges 0.43 percent a year, or $43 for every $10,000 invested. HGSD also charges 0.43 percent per year.
While many currency-hedged ETFs focus on large-caps, the case for mitigating currency risk with small-caps is equally as potent.
Small companies offer big potential the world overand approximately 50 percent of the worlds investment opportunities are outside the United States. So, in our opinion, there is no question that investing globally is a smart ideawhether the investor hedges the currencies or not. Currencies have sometimes pushed returns higher, but can also push them lower, so the question then becomes whether investors want to take on the additional risk. Unhedged global strategies inherently have a bullish opinion on foreign currencies. So, for investors without an opinion on currency direction, hedged strategies can make a lot of sense, added New York-based WisdomTree.
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