Fund sensation of 2015 comes down to Earth with a bump

The fund had surged by up to 23 per cent in the first four months of the year in the wake of European Central Bank president Mario Draghi’s quantitative easing programme (AFP/Getty Images)

It was the fund sensation of 2015. But now the runaway success of the world’s top-selling exchange traded fund is seeing out the year with a whimper after investors got their fingers burnt by euro central bank policy.

The WisdomTree European Hedged Equity ETF, which invests in European stocks and hedges currencies, is still the best-selling ETF of 2015, but a late spiral during December has deflated the giant fund, according to figures from Bloomberg.

Sky-high returns of 18 per cent on display during the summer have fallen to Earth after the fund dived by about 14 per cent during December, leaving year-to-date returns flat and triggering a $1.6bn (£1.1bn) exodus of cash from the fund.

The sudden change in fortunes has been driven by an unexpected shift in stock and currency markets, which wrong-footed ETF investors.

The ETF is a so-called hedged equity product, which means it mirrors the performance of European stock markets but takes away the negative effects of moves in the euro, giving investors a better return on their cash.

The fund had surged by up to 23 per cent in the first four months of the year in the wake of European Central Bank president Mario Draghi’s quantitative easing programme, which launched in March. The €60bn-a-month bond-buying plan mirrored other QE programmes in the US and UK by benefiting stock markets but weakening the value of the currency.

WisdomTree’s ETF attracted investors seeking to benefit from the move in markets, as European stock indices soared and the euro plunged to its lowest level in a decade. Some $14.6bn flowed into the fund this year, most of it in the wake of the Mr Draghi’s announcement.

The fund’s early success underscored the appeal of hedged ETFs, which have attracted a fifth of all ETF inflows this year, equivalent to about $50bn, according to Bloomberg figures.

However, December has marked a reversal of fortunes for currency and equity markets in Europe, pushing European stocks and the euro in the opposite directions forecast.

The Eurostoxx 600, a blended composite index of European indices, is down 4.43 per cent so far this month after investors baulked at Mr Draghi’s decision to extend bond-buying by six months to March 2017 – instead of to September 2017 as hoped – and failed to raise the rate of purchases from €60bn (£44bn) a month.

Meanwhile, the euro has had its best month against the dollar since April, despite a US interest rake hike.