A year ago, investors were buying the WisdomTree Europe Hedged Equity Fund (HEDJ) like never before. They’re now dumping it in droves, switching to an exchange-traded fund offered by BlackRock Inc. that’s taking in record money.
While still small, the iShares Currency Hedged MSCI Eurozone ETF (HEZU) saw a 40-fold surge in market value in a year. That included record inflows in December, a month when traders took out $1.8 billion from the WisdomTree fund, the most ever.
The securities are similar in that they track European equities with a currency hedge, a feature that made WisdomTree’s ETF a favorite among traders wanting in on a stock boom fueled by central-bank stimulus.
But after growing by almost $14 billion last year, investors are turning to the cheaper BlackRock option. Mizuho Securities USA Inc.’s Monish Shah picked the $2.4 billion HEZU fund because he sees it as more shielded from turmoil in global stocks as it has a bigger allocation to companies poised to benefit from the domestic recovery.
“Given the current market situation, the difference in index structure and the cheaper expense ratio, HEZU may continue to grow further,” said Shah, head of ETF trading at Mizuho in New York.
Global stocks started the year on the wrong foot, mostly due to renewed worries of a China-led slowdown. While both ETFs have dropped in the past three days, HEZU has lost 6 percent, less than HEDJ’s 6.4 percent slide.
But strategists are bullish on Europe’s equities, citing the outlook for more stimulus as a catalyst for a 18 percent gain in the Euro Stoxx 50 Index by year end, from Thursday’s close. That may send more investors to HEZU, which has a 13 percent weighting in banks verus HEDJ’s 7.9 percent. Indeed, since European Central Bank President Mario Draghi pledged to save the euro, the region’s lenders have rallied about 20 percentage points more than the broader market.
Also helping fuel the record $757 million in inflows to BlackRock’s fund last month: its cheaper net annual expenses of about 0.5 percent, compared with almost 0.6 percent for the WisdomTree ETF.
BlackRock declined to comment for this story. WisdomTree representative Jessica Zaloom said the company focuses on the long-term prospects for its products, “both in terms of the innovative and differentiated investment solutions they offer investors and the assets they ultimately gather,” she wrote in an e-mail.
Michael Mullaney, chief investment officer at Fiduciary Trust Co. in Boston, chose HEZU over HEDJ because it tracks a hedged version of the wider-known MSCI EMU Index, rather than a gauge designed by WisdomTree.