Much has been made of the recent trend of dollar weakness, particularly against the euro. As of this writing, it was at $1.24. As recently as April 2017, it was at $1.06.1
Has It Mattered for Equity Investors?
On the face of it, the answer to this question has been yes. U.S. investors haven’t necessarily fled European stocks—but they have fled currency-hedged equity strategies. Importantly, we have to call this trend what it is: chasing past returns.2
Ratio of WisdomTree Germany Hedged Equity Index to WisdomTree Germany Equity Index (Rising = Euro Depreciating; Falling = Euro Appreciating)
Exporters vs. the Broad Market Capitalization-Weighted Benchmark for Germany
Digging a layer deeper, WisdomTree developed the WisdomTree Germany Hedged Equity Index to deliver distinctly different performance than the MSCI Germany Index. Our Index is dividend weighted and selects stocks that have less than 80% of their revenues from inside Germany, as opposed to market capitalization-weighted with a broad market focus.