Industry Updates

WisdomTree offers hedges for CoCo and commodity funds

Scott Longley


WisdomTree has announced the launch of new currency hedged share classes for a CoCo (contingent convertibles) bond ETF and a commodity fund to enable investors to mitigate against pronounced currency movements.

The new euro, sterling and US dollar-hedged share classes of the WisdomTree AT1 CoCo Bond UCITS ETF and the WisdomTree Enhanced Commodity UCITS ETF went live this week on the London Stock Exchange.

Rafi Aviav, WisdomTree head of product development in Europe said: "The CoCo Bond ETF offers uniquely broad and diversified exposure to CoCos and the index tracks 95% of the liquid developed AT1 CoCo bond universe across Euro, Pound and Dollar denominations."

The new hedged classes of the fund provide exposure to foreign assets but with greater protections against the impact of currency movements and allowing investors a "purer exposure" to the underlying asset.

"We believe that the best way to take currency risk out of CoCos is through a currency hedge applied to a broad, diversified portfolio rather than taking a view on portfolios of a single denomination, which tend to be concentrated and unrepresentative of the underlying universe," says Aviav.

Similarly, the hedged share classes of the WisdomTree Enhanced Commodity UCITS ETF will provide exposure to enhanced broad commodities while providing greater investor protection against the impact of adverse currency movements.

WisdomTree says the Fund also uses an innovative dynamic roll process, with a view to "minimising roll costs in contango, and to maximising roll return in backwardation", ultimately aiming to reduce the long-term costs of holding commodity exposures.

The company says that net flows into commodity ETPs globally stand at US$1.14bn in the year-to-date and gaining exposure to commodities has become an increasingly important feature in the investment landscape,.

Christopher Gannatti, head of research for WisdomTree in Europe said: "We are seeing greater demand from investors for broad exposure to this asset class as understanding of its uncorrelated risk contribution has increased.

"Commodities tend to have a positive correlation with inflation which may be attractive in today's environment of interest rate increases and suitably diversified broad commodity exposure can help to mitigate specific risks associated with single commodities."

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