What: Shares of WisdomTree Investments (WETF +3.41%) were down more than 11% on Thursday at 2:30 p.m. EST as the U.S. Dollar Index took a dive.
So what: WisdomTree's most popular and profitable products are its hedged currency ETFs for foreign stocks. Its international hedged equity strategies made up $34.6 billion of its $53 billion in total assets under management at the end of the third quarter.
These ETFs seek to track changes in foreign stocks while hedging out the changes in the value of the U.S. dollar. Thus, if you wanted to get the returns of Japanese stocks without any currency impact resulting from the value of the dollar against the yen, you might invest in its WisdomTree Japan Hedged Equity Fund (DXJ +0.03%), which tracks the returns of Japanese stocks excluding currency fluctuations.
Hedged ETFs generally beat unhedged indexes when the U.S. dollar is rising in value, and lag the underlying unhedged index when the dollar falls in value.
Now what: The U.S. Dollar is on the move, falling about 2.3% against a basket of currencies as of 2:30 p.m. EST. When the dollar falls, hedged ETFs become less attractive to investors, and generally result in lower returns for hedged ETFs, and less AUM for WisdomTree.
The European Central Bank's decision to cut short-term rates to -0.3% vs. expectations for a cut to -0.4% led to a weakening dollar against the euro. Notably, the WisdomTree Europe Hedged Equity Fund (HEDJ 0.34%) was down about 4.3% at 2:30 p.m. EST.
These daily swings shouldn't matter very much to the long-term investor, however. What's most important is that investors generally like hedged products, and that WisdomTree continues to hold onto the leading position in the niche, two things that are as true today as they have been over time.
