BlackRock has launched an ETF which invests in large and mid-cap stocks from developed eurozone countries.
The iShares MSCI EMU USD Hedged UCITS ETF (EMUU) tracks an index comprising around 240 stocks from France, Germany, Spain, the Netherlands, Italy, Belgium, Finland, Ireland, Austria and Portugal.
The ETF seeks to minimise euro volatility by using a US dollar currency hedge.
The fund is physically replicating, purchasing and holding the underlying stocks, and has a total expense ratio of 38 basis points.
The product is iShares’ first US dollar-hedged European equities fund.
In May, the multinational investment management corporation announced a low-cost fund aimed at helping defined contribution schemes comply with the imminent auto-enrolment regulations around charge caps.
The fund, called the BlackRock Dynamic Allocation Fund, invests in a range of asset classes including – although not limited to – developed market equities, commodities, emerging market debt and corporate bonds, blending low-cost exposures within its multi-asset strategy.
Provider view
Tom Fekete, BlackRock’s head of product for iShares in Emea, said: “Many investors are interested in the prospects for European stocks but want new ways to invest in a risk-managed fashion. Europe has experienced a cyclical rebound from 2014, and equity valuations are attractive relative to those in the US. At the start of 2015, corporate earnings revisions in Europe turned positive for the first time since 2010.
“One of the benefits of a currency-hedged ETF is that investors don’t have to maintain an independent hedge, and can separate and control their currency risk. We already offer unhedged and Swiss franc-hedged ETFs based on this index, as well as funds based on other European equity indexes, and the launch reflects our desire to meet client demand for new types of product.”
Adviser view
Andrew Reeves, director at the Investment Coach, based in Northamptonshire, said: “ETFs are popular because they are low-cost, although a TER of 38 basis points is more expensive than some of the ETFs already out there. It is, however, reasonable value for the European market.
“Another reason why ETFs are popular is they trade throughout the day – unlike unit trusts, which trade once a day.
“I think people understand that ETFs are a good way to buy into a basket of different investments that are liquid.
“Currency hedging can be useful as long as the investor understands what it does. It allows the investor to invest in European stocks without exposing them to currency volatility.
“Investors should make sure that they understand the basket of underlying investments of the index the fund is tracking. The fund is not actively managed, meaning that if the market slumps, the fund would slump also.”
Charges
TER: 0.38 per cent.
Verdict
ETFS have become increasingly popular because they give investors exposure to a wide range of liquid investments at a reasonable cost.
Here, the stature of BlackRock’s name alone would probably be enough to attract investors to this proposition – even though the TER is not the most competitive. What is more, the ETF will not be viewed as the riskiest investment because it invests in a range of proven, developed European economies.
Currency hedging is an added benefit to minimise euro volatility – however, it might also be seen as an additional risk because volatility can go the other way and affect the dollar.
