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Takeaway: We will be hosting our latest deep dive BlackBook presentation tomorrow Thursday, December 17th at 11am EST.

watch the replay below.

We will be hosting our next BlackBook presentation tomorrow Thursday, December 17th at 11am EDT on asset manager WisdomTree (WETF). Our presentation will outline how there is substantial unrecognized risk in this high growth story:

  • Concentration Risk: The firm has the most concentration risk in the industry to its top two products, the HEDJ and the DXJ. Both of these international hedged products underperform benchmark in local terms and thus the main value proposition is that FX hedges offset their beta construction weaknesses. While the firm has cut its teeth on its innovative fundamental benchmarking process, our analysis finds consistent underperformance across most of its strategies. 
  • Dollar Risk: Because both HEDJ and DXJ are dependent on Dollar strength for returns, investors have embedded leverage to the fate of the U.S. currency. Our research shows that the dollar appreciates BEFORE rate hikes, but DECLINES after. Moreover, the dollar is a consensus long and there are numerous reasons to expect it to slow its rate of ascent. Currently the U.S. currency has put in a 3 standard deviation move within a 10 year period and has hit its +20% Y/Y rate of change, a key resistence level. 
  • New Product Risk: We see new product introduction waning as FX hedged products are successful to the extent that a cheap currency hedge is available. Only the Swiss Franc, the Euro, and the Japanese Yen are viable candidates for hedged equity products considering current interest rate differentials and liquidity, which means the firm has already launched its most successful funds.
  • Estimate Risk: WETF used to rely solely on its EM and fixed income products however those are in double digit decline now. Outside of the two important international hedged products the franchise is decaying its AUM by -4% Y/Y. The Street continues to have substantial expected growth for HEDJ and DXJ but this is risky considering local underperformance outside of FX gains. Our 2017 estimates are -25% below the Street and we see a high probability of the firm missing Consensus' lofty expectations.

CALL DETAILS - Thursday, December 17th at 11 am EST

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  • Conference Code: 13626744
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Jonathan Casteleyn, CFA, CMT 
 
 

Joshua Steiner, CFA