Book Review: The Little Book of Currency Trading

Knowledge of how currency market works and some degree of trading is a must for nearly everybody, as everybody is exposed to the currency risk to some degree, no matter you are a foreign products consumer, overseas traveller, or a investor. Based my personal practice of global tactical asset allocation portfolio management, and a forex trading overlay, I think monitoring the currency market is even more important than the stock market, as currency market is a crucial input to the stock market, and currency return played an important role in international investment.

The Little Book of Currency Trading is a book I’d like to recommend. It is very easy to read, has some very practical advice and tips. Here are things I’ve learned from this little book.

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1, Four ingredients consist of the formular of successful currency trading: knowledge of the currency market, trading strategy, risk management, and a bit of luck. With these you can go a long way.

2, Different pairs has different volatilities, or we can say each pair has its average daily trading range. Konwing this is important to set profit target and stop loss.

3, Time zone matters. Three trading zones, Tokyo, London, and New York. For North America traders, the worst time is the beginning of asian trading time, ie. 8pm est; the best trading time is 7-12 in the North America morning. Trends showed up in the beginning of the asian trading time may not last to the europe and americal trading time.

4, Combining long term trading and short term trading. Long term trading uses double bollinger bands; short term trading is mainly around news.

5, ADX above 25 as trend confirmation.

6, T1-T2 or half-half exit strategy.

7, Double Bollinger bands strategy, this is the most valuable part of the book.

8, For short term news trading, always wait 5 minutes after the news, to see the price is above or below SMA50.

9, High probabiliy trade has all factors line up, including fundamentals, technicals, and market sentiment. It’s very necessary to make a checklist for each trade entry: (1)chart review from left to right, determine the trend; (2)chart review bottom up, check horizontal support and resistance; (3)check fundamental, especially the central bank policy; (4)check economic date or news schedual in the coming 24 hours; (5)check market sentiment.

10, Diversify trades. Avoid correlated currencies, such as AUD and NZD.

11, Avoid unnecessary risk, such as hold a position over weekend.

12, Make a trading diary, deeply review each trade, learn something from each loss trade!

13, Treat trading as a business, not a hobby. Good business needs well prepared plan! And good execution!

 

 

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How to play Russia ETFs

The iShares MSCI Russia Capped ETF (ticker ERUS) has expended its AUM by 40% year-to-date in 2017, from $USD 446M to $USD 624M, according to the etf.com fund flow tool. And two Russia ETFs’ (RSX and ERUS) prices increased more than 20% since the low of July 2017. What are the factors drove these moves? Or say it the other way, how do we play Russia ETFs? This is the main focus of this blog article today.

Four factors to be considered when invest in Russa ETFs: (1) the Russian stock market; (2) crude oil price; (3) currency exhange rate, Russian Ruble to US dollar; (4) the money flows trend towards emerging markets.

1, Fundamental: the Russian stock market itself

There are 2 major indices for the Russian stock market. The first one is MICEX index, the second one is the RTS index. Acctually they are tracking the same basket of 50 most liquid Russian stocks of the largest and dynamically developing Russian issuers presented on the Moscow Exchange. Both are market-cap weighted. The main difference between 2 indices is, the MICEX is denominated in Russian Ruble, while the RTS index is denominated in US dollars.

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Source: Moscow Exchange http://www.moex.com/

2, Crude oil price

The Russian stock market is dominated by engergy companies. From the chart below we can see, the market capitalization of energy sector is weighted almost 50%.

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So inevitably, the performance of the Russian stock market is highly correlated to the crude oil price. From the chart below, we can see the RTS index goes along with the Brent crude oil price.

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3, Currency exchang rate: Russian Ruble to US dollar

As Russia’s economy is resource based, especially crude oil, its currency is also highly correlated to crude oil price. From the chart below, we can see the almost perfect correlation between exchange rate and oil price.

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Source: tradingview.com

4, The overall money flow towards emerging markets

Russia is classified as one of the emerging markets by MSCI, a major index provider. In 2017 we saw significant money inflows to the emerging markets funds. Russian stock market benefited from this inflow.

country classification table

Source: MSCI https://www.msci.com/market-cap-weighted-indexes

 

The bottem line: Among the 4 factors, oil price is definately the most influential factor. Frome the chart above (with 2 ETFs), we can see two Russia ETFs RSX and ERUS are both following the oil price trend. So to make our job easier, the simpliest way to play the Russia ETFs is to follow the crude oil trend.

 

 

 

 

“The Value of Value”

“Once you adopt a Value investing philosophy, any other investment behavior starts to seem like gambling.”

Seth A. Klarman, “Margin of Safety”

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It took me a few days to finish a letter written to fellow investors by Mark Yusko, Morgan Creek Capital Management, a money manager with $3B AUM. As part of the 66 pages long “Q2 2016 Market Reveiw and Outlook” of the company, this letter is 30 pages long, with the title of “The Value of Value”.

The reason I love this letter is the timing of it. In the past few months, I was struggling with which path of investment I should choose for the rest of my life. I was indulged in day trading for some times. I read some books about value investing, but the whole concept is still vague for me. Just a few days ago, a friend who is a beliver of value investing, had a chat with me and strongly suggested me to go the value investing way. Then I noticed this letter on Twitter (link).

Mark Yusko is the founder, CEO and CIO of Morgan Creek Capital Management. It was very interesting that the source I know him was from a podcast of NPR Money about crude oil (link). He is the only one who admitted to the public that he is a “speculator of oil”, according to the interviewers. When his name appears on Twitter, it drew my attention immediately.

Mark’s letter has a through review of Seth A. Klarman’s value investing philosophy. Some depicts are from Klarman’s famous book “Margin of Safety” , some are from Klarman’s letters to his fellow investors at Baupost. Mark’s letter systematically reviewed Klarman’s thoughts from 6 aspects: (1) philosophy; (2) mindset; (3) process; (4) team; (5) client; (6) culture. If someone wants to know Klarman’s value investing philosphy, this lettter is absolutely a piece of article worthy to be read back and forth.

There are many good examples and stories in the letter. One of them I love very much is about cash as an investment. The letter wrote (on page 29), a concerned client called Klarman to express his displesure that the Fund was so heavily invested in cash and asked “why I am paying you 2% and 20% for you to hold cash?” In a very calm manner, Klarman replied something along the lines of, “if you think you are paying me those fees to hold cash, you should redeem immediately. You are paying us 2% and 20% to know when to hold cash and when to invest, when to take risk and when to retreat to the sidelines. You are paying us those fees to know when is the best time to press the best possible risk/reward. But since you fee this way, I will waive the usual lock-up restrictions and wire your cash to you in the morning.” What a wise explanation of the value of holding cash and the value of professional expertise!

Klarman’s book is out of circulation since its first print of 5000 copies. Now it is sold on Amazon with a price tag of over $1,000, kind of like a collectible. But the content could be found on internet due to its popularity. It is on my reading list for this week.

 

Fintech Toronto Event

Today I participated the Fintech Toronto event at downtown Toronto. This is the first time I join this kind of event. It was mind-openning, fun, and inspiring. I guess there are about 150 or more people attended this event.

FintechTo Event

The event featured 3 speakers from 3 Fintech companies: FinanceIt, Honk, and OANDA. All of the 3 speakers’ sharing are facinating.

FinanceIt is a consumer finance comany, focused on home renovating loans. The company originally started from 2007. Along the way, they have tried many market niches, overcame all kinds of unexpected obstacles. Theire story let me know start-up is never easy.

Honk provides solutions for drivers who want to find an ideal parking spot. This is really a big issue each time when I am going to downtown Toronto. The Honk app can even offer discounts. Drivers can pay on cell phone. Definiate I will try it the next time. Michael, the enterpreneur who created this start-up company, has successfully created, operated and sold his first company. What I learned from Michael is, good business model means you can solve a problem for people. First of all, you should find out where the problem is.

OANDA is an online forex trading platform. Although I don’t use OANDA’s platform(I use IB), I have known it for a while. The company’s founder, another Michael, compares starting up a business and work for a bank. The former only suitable for those who have enterpreneurship, vision, and hard working. If your goal is to make big money, you’d better go to work in a bank, this is his advice.

Will I start up a business someday? Maybe! It has never been on my option list, but why not?

 

 

 

 

 

 

 

 

 

Trading US Dollar with ETFs: A Canadian Perspective

The US Dollar Index generally kept an uptrend since May (as shown in the chart below), although it had some zig-zags. Last friday, the US dollar had a sharp drop due to disappointed GDP release. There are sevaral reasons to belive that the US dollar will pick up the momentum, so the drop last week provides opportunities to buy. At the same time, oil price kept going down, it may boost the uptrend of USD/CAD. From a Canadian trader’s perspective, if you want to long the us dollar, there are at least 4 ETFs available to choose.

US Dollar Index 2016-08-01

USD:CAD 2016-08-01

1, Comparisons of 4 ETFs

The four ETFs can be classified into two groups: (1) US dollar against a basket of currencies, two ETFs are UUP and USDU; (2) US dollar against Canadian dollar, two ETFs are FXC and DLR/DLR.U. Here are some comparisons about these 4 ETFs.

  USD against a basket of currencies USD against CAD
  UUP USDU FXC DLR/DLR.U
Fund Name PowerShares DB US Dollar Index Bullish Fund WisdomTree Bloomberg U.S. Dollar Bullish Fund Guggenheim CurrencyShares® Canadian Dollar Trust HORIZONS

US DOLLAR CURRENCY ETF

Issuer Invesco WisdomTree Guggenheim Horizons
Exchange NYSE Arca NYSE Arca NYSE Arca TSX
Inception Date 02/20/2007 12/18/2013 6/21/2006 APRIL 06, 2011
Net Assets 829.9M USD 246M USD 207.8M USD 69.9M CAD
Benchmark Deutsche Bank Long US Dollar Index (USDX®) Futures Index – Excess Return™ Bloomberg Dollar Total Return Index CAD.USD USD.CAD
30 Day ADVolume 1,204,479   57,039  
Management Fee 0.75% 0.50% 0.40%CAD 0.45%
Holdings DX futures US Treasury Bills and Short Currency contracts 100% Canadian Dollar US Treasury Bills and Cash

2, Comparisons of the benchmarks of UUP and USDU

2.1 UUP tracks the US Dollar Index (USDX). The introduction of this index see here. It is created in 1973 to reflect US’ trading relationship and only adjusted once when the Euro was introduced.The index is consisted by 6 developed markets currencies. Euro accounts 57.6% weighting, so the index is highly correlated with Euro. The futures based on this index is trading at ICE futures US.

2.2 USDU tracks the Bloomberg Dollar Total Return Index (BBDXY). This index could be regarded as an optimization of the US Dollar Index. It is based on most current global goods trade and currency trade. Compare to USDX, BBDXY deleted Swedish Krona and Swiss Franc, added 5 new currencies: Mexico Peso, Australia Dollar, Brazil Real, South Korea Won, and China Yuan. It is broader, more representative, and less concentrated.

2.3 One major difference of the two indices is: the components and weightings of USDX is static, while those of BBDXY is rebalanced annually according to the global trade and currency trade.

  Currency U.S. Dollar Index (USDX) Bloomberg Dollar Total Return Index (BBDXY)
Euro EUR 57.6% 31.8%
Japanese Yen JPY 13.6% 18.5%
British Pound GBP 11.9% 9.5%
Canadian Dollar CAD 9.1% 11.5%
Swedish Krona SEK 4.2%  
Swiss Franc CHF 3.6%  
Mexico Peso MXN   9.9%
Australia Dollar AUD   6.1%
Brazil Real BRL   2.1%
South Korea Won KRW   3.4%
China Yuan CNH   3.0%

3, Individual fund analysis

3.1 UUP – PowerShares DB US Dollar Index Bullish Fund. This fund’s underlying index is USDX, which is highly correlated with Euro. This fund is very liquid.

3.2 USDU – WisdomTree Bloomberg U.S. Dollar Bullish Fund. The fund holds short term US treasury bills and sell 10 foreign currencies future contracts. USDU’s performance is generally close to UUP but differs from time to time slightly.

3.3. FXC – Guggenheim CurrencyShares® Canadian Dollar Trust. This fund is for investors who take a bearish outlook of USD against CAD. It is just opposite to DLR. If an investor believe USD will appreciate against CAD, he or she should short FXC.

3.4 DLR – Horizons US Dollar Currency ETF. This ETF is for Canadian investors who has a bullish outlook of USD against CAD. It is also a widely used currency conversion tool in Canada. The fund has both CAD and USD version, so it is very convenient for investors.

4, Considerations of trading these ETFs

4.1 Trading against a basket of currencies or an individual currency. Generally speaking, trading against a basket of currencies is less volatile than against individual currency.

4.2 Watch the related central bank policies. UUP is highly correlated to ECB. USDU has higher weighting on JPY.

4.3 Trading directions. UUP is bullish on USD, it also has an inverse version UDN. FXC is bearish on USD, DLR is bullish on USD.

 

 

 

 

WisdomTree Canada’s ETFs Review

On July 14 2016, WisdomTree announced the launch of its first suite of ETFs in Canada. These products relfected some most latest trends of the ETF products developments: multi-facctors, dynamic currency hedge. It also provides a comprehensive geographic coverage: US, Europe, and International. Here are some summaries of the products and my comments.

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Source: WisdomTree Canada’s webiste https://www.wisdomtree.ca

1, US Quality Dividend Growth ETFs DGR/DGR.B/DQD

1.1 The index methodology/investment universe starts from a base index “WisdomTree Dividen Index (DI)”. DI has several criteria: (1) US headquartered companies; (2) listed on NYSE or NASDAQ; (3) pay regular cash dividends on common stock shares; (4) market cap above US$ 100 million; (5) daily trading volume above US$ 100,000.

1.2 US Quality Dividen Growth Index has some further requirements: (1) market cap above US$ 2 billion, which is much higher than the DI requirement; (2)Earnings yield higer than dividend yield.

1.3 US Quality Dividen Growth Index factor weithging rule: (1) 50% weighted to the rank of long term earnings growth; (2) 25% weighted to the rank of historical 3 year average ROE; (3) 25% weighted to the rank of historical 3 year average ROA. We can conclude that it’s 50% to the past and 50% to the future, overall it’s focused on earnings growth.

1.4. Top 300 hundered stocks are chosen. Any single sector’s exposure is capped by 25%.

1.5 The holdings only cover 7 sectors and concentrated in 4 sectors: industrial 20.60%, consumer discretionary 19.77%, information technology 19.35%, consumer staples 18.23%. Financials only account 3.41%. Three industries are missed: energy, utilities, and telecom. (While in 2016, energy and utilities are best performers in US market).

1.6 Dynamic hedging strategy: based on 3 factors of the currency pair of USD/CAD: (1) momentum, (2) interest rate differentials, and (3) value, the hedge ratio could be 0.0.0%, 16.67%, 33.33%, 50%, 67.67%, 83.33% or 100.00%

1.7 Based on the same index, while different currency hedging strategies, the company provides 3 version of the products: (1)DGR, no currency hedge, unit holders are exposed to the fluctuation of USD/CAD; (2)DGR.B, fully hedged, clients will only get the return of the index itself; (3) DQD, dynamically hedged, a strategy with its effectiveness hasn’t been proofed by the market. These three version provide good optionalbility for investors and advisors.

1.8 This product’s index methodology and numbers of holdings let me recall another similar product: GSLC, Goldman & Sachs US ActiveBeta Large Cap ETF, while the latter uses 4 different factors: value, momentum, quality and low volatility. GSLC has 400 holdings. GSLC is listed in US, so it has no currency hedge necessity.

2, US High Dividend Index ETFs HID/HID.B

2.1, The index is derived from the base index DI. A few more criteria were added to filter the stocks in the DI investment universe: (1) market cap above US$ 2 million; (2) average daily trading volume above US$ 200,000. Then the component companies rank in the top 30% by indicated annual dividend yeild are selected.

2.2, Current holdings cover all 10 sectors (which is different from the US Quality Dividend Growth ETFs), the first 3 sectors are: consumer staples 17.73%, energy 15.65%, financials 13.74%. As the index methodology focused on pure curren dividend payments, growth factor is not considered. Its top ten holdings are all traditional big names, no technology companies, this is quite different from DGR/DGR.B/DQD.

2.3, This fund holds 431 stocks, 130 more than DGR/DGR.B/DQD.

3, WisdomTree International Quality Dividend Growth products IQD/IQD.B/DQI

3.1 The base index WisdomTree International Equity Index’s screening criteria. It covers dividend paying companies in Japan, the 15 European countries, Australia, Israel, New Zealand, Hong Kong or Singapore. Some screening criteria: (1) annual dividen payouts at least US$ 5 million; (2) market cap at least US$ 100 million; (3) average trading volume at least US$ 100,000.

3.2 The WisdomTree International Quality Dividend Growth Index is derived from the base index and comprises 300 companies from the base index. It filtered furthur by some more strict criteria: (1) market cap at least US$ 1 billion; (2) earnings yield greater than the dividend yield;

3.3 Weighting method is the same as US Quality Dividend Growth ETFs. Eligible companies are ranked using a weighted combination of three factors: 50% weighted to the rank of long-term estimated earnings growth, 25% weighted to the rank of the historical three-year average return on equity, and 25% weighted to the rank of the historical three-year average return on assets. Top 300 companies by this combined ranking will be selected for inclusion. Currently it holds 220 companies.

3.4  Based on the index, there are 3 dfferent version of ETFs: (1) unhedged IQD; (2) fully hedged IQD.B; (3) dynamically hedged DQI. Dynamic hedging strategy: based on 3 factors of the currency pair of USD/CAD: (1) momentum, (2) interest rate differentials, and (3) value, the hedge ratio could be 0.0.0%, 16.67%, 33.33%, 50%, 67.67%, 83.33% or 100.00%.

3.5 Sector breakdown. 8 sectors are covered. Highly concentrated on Consumer Discretionary, Consumer Staples, Healthcare, and Industrials. No energy companies.

3.6 Country allocation. 20 countries are covered. Countries have more than 10% allocaions are (1) UK 19.61%; (2) Switzerland 12.23%; (3) Netherland 10.98%; (4) Japan 10.38%.

4, WisdomTree Europe Hedged Equity Index ETF EHE

4.1 Index methodology. The index is derived from the base index WisdomTree International Equity Index and add some criteria: (1) listed in Europe exchanges, UK is not included; (2) Companies must be domiciled in Europe and traded in Euros, so the hedge is only related to EUR/CAD; (3) derive at least 50% of their revenue from countries outside of Europe, this is a very special and critical requirement; (4) annual dividend payout at least US$ 5 million; (5) market cap at least US$ 1 billion.

4.2 Sector breakdown. It consists of 9 sectors and the top 3 sectors are: (1) consumer staples, 19.66%; (2) industrials, 17.85%; (3) consumer discretionary, 17.43%.

4.3 Country allocation. It covers 10 euro zone countries, France is the largest component, accounts for 25.24%; Germany is the second largest with 25.13%.

5. Some comments

5.1 It is very good to see a major US player comes to the Canadian market. There are some new entrants this year, but not as established as WisdomTree. It’s positive for the industry’s long term development.

5.2 Distribution is the key. Asset gathering is very critical for new ETFs. In Canadian market, except some first mover (such as iShares and BMO), I belive big banks and insurance companies will get the lion’s share in the ETF market gradually, because they have superior distribution capability. New and small ETF issuers will be struggling with asset gathering. We have already see the low AUM and trading volume of the products of small issuers.

5.3 Time of entry. The time WisdomTree launched their products is just when US markets reaches new highs. Europe is still facing challenges of more countries will exit European Union. Investors are concerned about the global equity markets. As an investor, I will not add any long term positions at current price. If the market has material correction in the second half of this year, asset gathering will be more difficult. But I belive WisdomTree has already taken in all these headwind factors.

Opportunities in China’s Securities Markets

Today I attened an event about the introduction of China’s Securities Markets hosted by New Horizon Career Club. Mr. Yong Wong, Chife Risk Investment of Everbright Securities of China, introduced the latest development of China’s securities market. Hundereds of young financial professionals and students from the University of Toronto joined the meeting. This is really a wonderful event that I learned a lot.

Securities Markets In China

My main takeaway from this event is that you should be a subject matter expert in a specific area if you want to advacne your career into a new stage. It may be portfolio management, ETF products, derivative products, or trading. The global financial markets are getting integrated, capitals and human resources are moving endlessly. There are always opportunities, but they are only available for those prepared.

S&P Dow Jones ETF Masterclass Event

On Thursday, June 23 2016, I attended the S&P Dow Jones Indices ETF Masterclass at downtown Toronto. This is the second year SPDJ hosts this kind of event and I attened both. Speakers are mainly from indices provider (SPDJ), ETF issuers, ETF strategists. The event was very well orgainized and informative.

IMG_4328

Although I learned a lot at the product and technique level, for me the most important takeaway from this event is the confidence of the direction I have choosen: to be a subject matter expert of ETFs. We are fortunate to be in the North America where the ETF markets are more advanced than the rest of the world. There are more than 2500 ETFs, 170 providers and 800 strategists combined in US and Canada. The ecosystem is well developed. At the same time, the markets are still developing rapidly and have lots of potential. The future is bright and exciting.

To achieve the goal of becoming an ETF expert, at least 2 layers should be done.

Layer 1, digest the products. This is very time consuming but it is absolutely essential. You need to read through the documents, understand the methodologies. A good way to enhance understanding is to compare similar products and find out their differences.

Layer 2, use ETFs to build portfolios. After you mastered the characteristics of different products, you’ll move to the state of utilizing them. Build a low cost and well diversified ETF require knowledge, discipline and patience. There are many lures and traps. Simplicity is the ultimate sophistication.

These are the focus of my self-learning plan in the second half of 2016.

CSTA Annual General Meeting Takeaways

Today I attended the Canadian Society of Technical Analysts (CSTA) 30th general meeting at Sheraton Toronto. This is a great event that I got the opportunities to meet masters and practitioners of technical analysis, listened to their thoughtful sharings. It happened that I was sitting next to Mr. Ron Meisels, the founder and first President of the Canadian Society of Technical Analysts (CSTA). I also talked to Mr. Larry Berman, he won the most awards today due to his distinguished contribution to the technical analysis in Canada.

A few takeaways from the event:

IMG_4319

1, Technical analysis can explain something fundamental analysis cannot. This is true becasue fundamentals will not change as frequent as prices. If you can master both, you will be able to understand market behaviors more convincingly.

2, CFA + CMT. Mr. Larry Berman says, CFA helps you to get the job, CMT helps you keep the job. I totally agree with his point that a designation of technical analysis will sharpen your skills and boost your career.

3, Technology development make it possible for more people to utilize technical analysis. 20 years ago, due to technology limitation, general public don’t have the  convenient access to technical analysis. Today we have high speed internet, real-time data of global exhanges, customized screening tools, high performance computers can produce any technical analysis as you want. Sophisticated trading platforms now are available to common individual investors. All of these will make technical analysis more prosperous in the coming years!

4, Technical analysis is not only technics, but also arts. With the same chart, different technician may get different conclusions. You still need experience and intuiton to your final decisions.

5, Success comes from hard working. Success doesn’t come by chance. Many successful technical anaysts I meet today, they worked in the field for decades, from 6:00am to 12:00pm day after day. This let me recall a principle of 10,000 hours. If you want to be a specialist in any field, you need at least 10,000 hours deliberate practice.

 

Adaptive vs Dynamic: Comparison of two new currency hedged Japan ETF

Probably the majority of investors would agree that currencies are the most difficult markets to forecast. This year, the movement of Japanese Yen and Euro against US dollar good examples of currencies unpredicatability. Although Japan and Euro Zone are in the negative interest rate territory, US is going to increase interest rate, Yen appreciated 13.0%,  Euro appreciated 4.4%, against USD respectively. They are out of the majority’s predition.

JYP & EUR

At the beginning of 2016, currency hedged ETFs evolved into a new stage. Almost at the same time, iShares and WisdomTree launched their new currency hedged ETFs, and the ideas are very similar. On Jan. 5 2016, iShares launched 3 “Adaptive” currency hedged ETFs: DEFA (iShares Adaptive Currency Hedged MSCI EAFE), DEZU (iShares Adaptive Currency Hedged MSCI Eurozone), DEWJ (iShares Adaptive Currency Hedged MSCI Japan). On Jan. 7 2016, WisdomTree launched 4 “Dynamic” currency hedged ETFs: DDWM (WisdomTree Dynamic Currency Hedged International Equity), DDLS (WisdomTree Dynamic Currency Hedged International SmallCap Equity), DDEZ (WisdomTree Dynamic Currency Hedged Europe Equity), DDJP (WisdomTree Dynamic Currency Hedged Japan Equity).

By comparing DEWJ and DDJP, we can know more about how these new currency hedge strategies work.

DEWJ vs DDJP

From the table above, we can find that two funds are quite similar in almost all aspects. The major difference is the hedge ratio options: DEWJ has only 5 fixed options, while DDJP can be anywhere from 0 to 100%. Currently, DEWJ hedged 75% of its underlying assets, while DDJP hedged slightly above 50%. Due to the strong appreciation of Japanese Yen in June, both funds forward contracts (short Yen long USD) lose money.

Another notable point is that both funds are very small by net assets. In the iShares Japan fund series, EWJ is giant with net assets 14.7 billion, HEWJ (the fully hedged version of EWJ) has a net assets of 610 million, DEWJ (the adaptive hedged version of EWJ) has only 3.3 million. In the WisdomTree family, DXJ (fully hedged) has 7 billion, while DDJP has only 4.5 million. In the long run, if these adaptive/dynamic strategies really work, these funds will gain popularity.