VettaFi’s vice chairman Tom Lydon discussed the WisdomTree Europe Hedged Equity Fund (HEDJ ) on this week’s “ETF of the Week” podcast with Chuck Jaffe of Money Life.
Given current market conditions, hedging currency risk and doing what you can is more important than ever. “The word for 2023 needs to be diversification,” Lydon said, noting that there are numerous challenges facing the markets today, ranging from interest rates, to inflation, to domestic valuation issues. With a recession looming and on the heels of a bear market for both stocks and bonds, investors need to think beyond domestic markets.
Lydon asserted that overseas markets, particularly developed markets, have been largely ignored for over a decade. According to Lydon, “It’s been really hard to beat the S&P 500.” This means that the valuations abroad are notable. Through HEDJ, investors can capitalize on these valuations to get exposure to established, secure companies at a discount. HEDJ also has the benefit of being less tech-heavy than the S&P 500, further enhancing its ability to help diversify a portfolio.
“This strategy is valued in the right area and is also above its trend line,” Lydon proffered. Importantly, HEDJ also brings about diversification in regard to currency risk.
According to Jaffe, HEDJ is an interesting construction. Unlike many hedged strategies, it’s not active and instead works off an index of an index, focused on dividend-payers domiciled in Europe who pay out dividends in euros. “It’s not really hedging equities,” Lydon observed, “it’s hedging currency.” Dividend-payers that maintain or increase their dividends year after year tend to weather economic storms better than most companies. “There’s a lot to unpack when you look at this ETF,” Lydon said.
Lydon noted that most investors do not have enough international diversity, and suggested that HEDJ can help balance a portfolio. Because of its trendlines, it also makes for a compelling fund for those investors that have kept their powder dry and have a cash position on the side. “When everyone is jumping up and down feeling great about the stock market again, you’ve missed your chance,” he said. Because HEDJ is recently over its 200-day, now is a potentially opportune time to jump in.
For more news, information, and analysis, visit the Modern Alpha Channel.
