WisdomTree Investments Inc. (NASDAQ: WETF) has risen handily in value over the past year, and part of its growth has been its assets under management due to the hedged ETF strategy. With all of the funny money being created out there, this is a fresh easy way for investors to buy into an overseas stock market without having to worry about the currency risk. Two such hedged equity ETFs are worth looking at closely: WisdomTree Japan Hedged Equity (NYSEMKT: DXJ) and the WisdomTree Europe Hedged Equity (NYSEMKT: HEDJ).

WisdomTree Japan Hedged Equity (NYSEMKT: DXJ) now has reached more than $5 billion in assets as investors are chasing the Japanese quantitative easing winners (Japanese stocks) without the risk of the falling yen. Jeremy Schwartz, WisdomTree’s Director of Research, was quoted in mid-March saying:

Japanese Prime Minister Shinzo Abe has nominated Haruhiko Kuroda to succeed Masaaki Shirakawa as head of the Bank of Japan. We believe the BOJ supports bold action to potentially reverse Japan’s long-term deflationary trend, manifesting primarily in a weaker currency … We also believe that we are still in the beginning stages of a potentially big move, with ample room for the yen to further depreciate and equities to continue their gains. For some context, the Nikkei 225, a broad Japanese stock index, has to appreciate more than 50% from its current 12,000 levels to reach its early 2007 levels of 18,000, while the Dow Jones Industrial Average reached a new high and S&P 500 is almost past its all-time high.

Note that this one ETF is currently more than 20% of the firm’s assets (as of March 15). The ETF now trades at $43.50 on more than 2 million shares per day on average, and its 52-week range is $30.07 to $44.29. With shares closing out 2012 at $36.88 on an adjusted basis, the ETF is up by 17.9% year-to-date. Compare this to the iShares MSCI Japan Index (NYSEMKT: EWJ) and the result is clear: the iShares is up 10.4% and the hedged ETF is up by 17.9%.

The WisdomTree Europe Hedged Equity (NYSEMKT: HEDJ) aims to buy the European market, minus the euro currency risks. WisdomTree’s website even says:

The greatest challenge with Europe may not be its equity markets, but the euro itself. We believe the many global brands headquartered in Europe are still attractive investment opportunities. HEDJ offers you a way to capitalize on their growth potential, while hedging the effects of the euro.

This ETF is not as liquid, with only about 50,000 shares trading each day, but imagine if the European Central Bank ever decides to get on with the devaluation program in a stronger manner that involves the printing presses like you have seen in Japan (or the United States for that matter). The “we’ll do whatever it takes to preserve the euro” leaves many open-ended promises and possibilities that have to be fulfilled.

This ETF is at $50.10, and its 52-week range is $38.94 to $51.19. With its shares closing 2012 at $47.66 on an adjusted basis, this ETF is up by 5.1% year to date. Compare it to the Vanguard MSCI Europe ETF (NYSEMKT: VGK) and the result is clear: The Vanguard ETF is up only 1.3%, versus a 5.1% for the Wisdom Tree hedged version.

If you look at the outperformance, it is not so extreme that we are panicked or anything. Many investors still do not even know that these ETFs exist. That being said, we would be mindful of these as currencies can reach extreme levels, and our take is that all major countries are either printing money now or at severe risk of doing so in the future. These ETFs may continue to perform similarly, relative to the traditional unhedged ETFs. There also has to be a reminder that nothing lasts forever, and when the trend changes or gets too out of line, the snapback will not be pretty.

Here is what is interesting, and what may be a huge undercovered event for 2013: the news out of Europe is starting to not look so bad. Europe could end up being the unsung song for 2013. There are many issues to consider.

News was out Thursday that the European Central Bank left its interest rates on hold at 0.75%. Here is what stands out: Improving economic sentiment and expectations of a gradual recovery. How different is that from two months ago? What is so interesting is that eurozone jobs data from this week were still looking weak and manufacturing data ended weak in 2012 as well. Did you notice that China’s exports were better than expected?

One issue really stood out in December. Greece’s credit rating was upgraded by S&P. That may have been on a technicality, but the outlook was actually Stable. Now we even have word that Ireland has successfully tapped the capital markets as well, and that it is living up to its austerity and constraint expectations.

So here are some things to consider. European stocks are getting a second look. Koninklijke Philips Electronics N.V. (NYSE: PHG), often considered a mini-GE of Europe, was upgraded by the research team at BofA/Merrill Lynch this week with a new Buy rating. ABB Ltd. (NYSE: ABB) also was recently raised to Buy at Societe Generale. It is no coincidence that Philips is at a new 52-week high and ABB is challenging a 52-week high.

Even the banking news in Europe is improving. Deutsche Bank A.G. (NYSE: DB) was up big on Thursday, but this is now within striking range of its 52-week high from March of 2012. What about Spain? Banco Bilbao Vizcaya Argentaria S.A. (NYSE: BBVA) is seeing its New York ADRs hit a 52-week high. Yes, Spain! Ditto for the Bank of Ireland (NYSE: IRE) with shares at a 52-week high. The laggard is still the ADRs of National Bank of Greece S.A. (NYSE: NBG), as its shares could double and still be under its 52-week high due to recapitlization.

You have to see confirmation in the ETFs and indexes as well. Guess what. Vanguard MSCI Europe ETF (NYSEMKT: VGK) and the SPDR EURO STOXX 50 (NYSEMKT: FEZ) both managed to hit new 52-week highs on Thursday.

We have projected that the Dow Jones Industrial Average is set to rise more than 11% in 2013 to a peak of 14,590 in 2013. Here is why.

Mr. Wien is not bullish on stocks. 24/7 Wall St. issued a peak target of 14,590 for 11% upside in the DJIA (NYSEMKT: DIA). Wien sees the S&P 500 (NYSEMKT: SPY) falling in 2013. Wien assigns a one-in-three chance of each of his major surprises coming to fruition to an average investor, but with better than 50% likelihood of one happening, according to him.

We have not just regurgitated his predictions. We have added stocks to watch, ETFs that would come into play and other color if applicable on each. Byron’s 10 Surprises for 2013 are as follows:

1. Iran announces it has adequate enriched uranium to produce a nuclear-armed missile and the International Atomic Energy Agency confirms the claim. Sanctions, the devaluation of the currency, weak economic conditions and diplomacy did not stop the weapons program. The world must deal with Iran as a nuclear threat rather than talk endlessly about how to prevent the nuclear capability from happening. Both the United States and Israel shift to a policy of containment rather than prevention.

2. A profit margin squeeze and limited revenue growth cause 2013 earnings for the Standard & Poor’s 500 to decline below $100, disappointing investors. The S&P 500 trades below 1300. Companies complain of limited pricing power in a slow, highly competitive world economic environment. If Byron is right, then that is bad news for the SPDR S&P 500 (NYSEMKT: SPY).

3. Financial stocks have a rough time, reversing the gains of 2012. Intense competition in commercial and investment banking, together with low trading volumes, puts pressure on profits. Layoffs continue and compensation erodes further. Regulation increases and lawsuits persist as an industry burden. This would not be good for Bank of America Corp. (NYSE: BAC) as it was the best DJIA performer in 2012 with gains of 100%. Meredith Whitney raised her expectations and said Buy Bank of America at the end of 2012, but now investors have to hope for more price hikes and analyst upgrades for the run to continue.

4. In a surprise reversal the Democrats sponsor a vigorous program to make the United States independent of Middle East oil imports before 2020. The price of West Texas Intermediate crude falls to $70 a barrel. The Administration proposes easing restrictions on hydraulic fracking for oil and gas in less populated areas and allowing more drilling on Federal land. They see energy production, infrastructure and housing as the key job creators in the 2013 economy. This would be bad for United States Oil (NYSEMKT: USO) and the likes of Exxon Mobil Corp. (NYSE: XOM) due to price, but might be better for Market Vectors Oil Services ETF (NYSEMKT: OIH) for a recovery on volume.

5. In a surprise reversal the Republicans make a major effort to become leaders in immigration policy. They sponsor a bill that paves the way for illegal immigrants to apply for citizenship if they have lived in the United States for a decade, have no criminal record, have a high school education or have served in the military, and can pass an English proficiency test. Their goal for 2016 is to win the Hispanic vote, which they believe has a naturally conservative orientation and which put the Democrats over the top in 2012.

6. The new leaders in China seem determined to implement reforms to root out corruption, to keep the economy growing at 7% or better and to begin to develop improved health care and retirement programs. The Shanghai Composite finally comes alive and the “A” shares are up more than 20% in 2013, in contrast with the previous year when Chinese stocks were down and some developing markets, notably India, rose. This would be a base for the iShares FTSE China 25 Index Fund (NYSEMKT: FXI), but we would note that this is already at highs.

7. Climate change contributes to another year of crop failures, resulting in grain and livestock prices rising significantly. Demand for grains in developing economies continues to increase as the standard of living rises. More investors focus on commodities as an investment opportunity and increase their allocation to this asset class. Corn rises to $8.00 a bushel, wheat to $9.00 a bushel and cattle to $1.50 a pound. There are the Teucrium Corn (NYSEMKT: CORN), Teucrium Wheat (NYSEMKT: WEAT) and the iPath DJ-UBS Livestock TR Sub-Idx ETN (NYSEMKT: COW) exchange-traded products to follow here.

8. Although inflation remains tame, the price of gold reaches $1,900 an ounce as central bankers everywhere continue to debase their currencies and the financial markets prove treacherous. This would be a boom for SPDR Gold Shares (NYSEMKT: GLD) and other gold ETFs. $1,900 gold would translate to about $187 per share, rather than about $163 today.

9. The Japanese economy remains lackluster and the yen declines to 100 against the dollar. The Nikkei 225 continues the strong advance that began in November and trades above 12,000 as exports improve and investors return to the stocks of the world’s third largest economy. The iShares MSCI Japan Index (NYSEMKT: EWJ) would be a focus, with CurrencyShares Japanese Yen Trust (NYSEMKT: FXY) as the device to hedge against a yen currency.

10. The structural problems of Europe remain largely unresolved and the mild recession that began there in 2012 continues. Civil unrest subsides as the weaker countries adjust to austerity. Greece proves successful in implementing policies that reduce wasteful government expenditures and raise revenues from citizens who had been evading taxes. European equities, however, decline 10% in sympathy with the U.S. market. The news is not great for CurrencyShares Euro Trust (NYSEMKT: FXE), and would be really bad news for Vanguard MSCI Europe ETF (NYSEMKT: VGK) and the SPDR EURO STOXX 50 (NYSEMKT: FEZ) ETFs.

Every year there are always a few surprises that do not make the top 10. Wien says this is because he either does not believe they are as relevant as those on the basic list or because he is not comfortable with the idea that they are “probable.” Below are several “also rans” that did not make the top 10 surprises, along with issues to watch for each:

11. Having traded below 20 for most of 2012 the VIX Volatility Index surges 33% to 30, providing a bonanza for traders. The decline in the S&P 500 increases market volatility. iPath S&P 500 VIX ST Futures ETN (NYSEMKT: VXX) is close to the lows of the past year now with volatility so low.

12. The Newtown, Connecticut, massacre finally convinces Congress to do something about gun control. As a first step they ban future civilian purchases of automatic weapons, including handguns, with clips of more than ten rounds and require more extensive background checks on all gun purchases. “It should not be easier to buy a gun than rent a car” becomes a slogan. Smith & Wesson Holding Corp. (NASDAQ: SWHC) and Sturm, Ruger & Co. Inc. (NYSE: RGR) have been hit hard since the massacre but have recovered handily due to fears perhaps being overblown.

13. Frustrated by an inability to increase revenues through raising income taxes, Congress begins to consider different approaches. There is more talk of a value-added tax as well as a wealth tax, and these ideas appear to be slowly gathering momentum. While there is not an ETF for this, both are called a redistribution and penalty not just for success of the past. One is an incentive tax and one is a tax on the masses.

14. Congress decides that high-frequency and other computerized algorithmic-based trading practices are putting the individual investor at a disadvantage. A transaction fee designed to slow down frenetic activity and protect against “flash crashes” and glitches is imposed on intra-day trades. NYSE Euronext Inc. (NYSE: NYX) is already merging with IntercontinentalExchange Inc. (NYSE: ICE) ahead of the coming changes here. The move still leaves Nasdaq OMX Group Inc. (NASDAQ: NDAQ) out all alone, for now.

15. The planet finds itself saturated with technology. Semiconductor companies, software providers, social media favorites and personal computer manufacturers all report disappointing earnings and provide discouraging guidance. They lead the overall market lower. Users finally agree the present state of the art is fast enough and connected enough, and that they have more “apps” than they know what to do with. Sorry, but that is bad for the likes of Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG), Microsoft Corp. (NASDAQ: MSFT), Intel Corp. (NASDAQ: INTC) and it is even bad for Facebook Inc. (NASDAQ: FB).

Stay tuned to the outlooks this week and next.

JON C. OGG

The financial damage is massive and the question boils down to how far the contagion can spread throughout Europe (and elsewhere).  Austerity measures throughout Europe are now backfiring.  France put in Hollande as a move back to the left as Sarkozy’s austerity measures were just going to be too great for the population to want.  Inflation before cutbacks!  Live well today, let the kids figure it out when hey get older!  Hell, even The Netherlands could not agree on a budget and they have their act together financially just about as well as any of the top nations.  Angela Merkel’s party suffered a regional election loss in recent weeks as well.

Greece will not likely be the only casualty here.  Portugal, Spain, and Ireland are all at risk.  Sinn Fein has been making policy statements about austerity and the Euro inclusion and went as far as issuing a video to call for a NO vote in the Austerity Treaty referendum.  Spain has a serious capital shortfall in its banks if the reports over the size of the property value losses versus face value of loans is even only one-third true.  Portugal is just totally irrelevant to Europe, but it is upside down and at risk.  And Italy is just simply “too big to bail” with its debt and spending issues that lie ahead.

The fallout is running top to bottom… safe havens to PIIGS… We are seeing all the new 52-week lows come into play in some positions while many others are still above those recent lows.

iShares MSCI Germany Index (AMEX: EWG) is down 2.2% at $19.87 against a 52-week low $16.96; iShares MSCI France Index (AMEX: EWQ) is down 2.4% at $18.61 against a 52-week low of $17.88. The there is “the Euro currency ETF” via the CurrencyShares Euro Trust (AMEX: FXE) with a drop of 0.9% at $125.03 (new 52-week low) as the Euro is at the lowest point since July 2010.  iShares MSCI Italy Index (AMEX: EWI) is down 3.8% at $10.26 and only one-penny above the $10.25 52-week low.

Ireland… The Bank of Ireland (NYSE: IRE) is down 2% at $4.90 against a 52-week low of $3.99. The New Ireland Fund, Inc. (NYSE: IRL) is down 1.1% at $7.79 against a 52-week low of $6.49.

Greece… National Bank of Greece SA (NYSE: NBG) is flat at $1.52 against a 52-week low of $1.45; Global X FTSE Greece 20 ETF (AMEX: GREK) is down 3.5% at $9.99 at a new 52-week low (prior $10.25 low). The election in mid-June will likely be the key determining factor here.  If not, the situation is still not over and Greece is going to be an ongoing flight risk.

Spain… iShares MSCI Spain Index (AMEX: EWP) is down 3.3% at $22.81 and under the prior 52-week low of $22.87.  Banco Santander, S.A. (NYSE: STD) is down 3.5% at $5.58 against a 52-week low of $5.52 and Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA) is down 4% at $6.02 against a 52-week low of $5.96.

Vanguard MSCI Europe ETF (AMEX: VGK) tracks the  MSCI Europe Index, which is made up of approximately 460 common stocks of companies located in 16 European countries-mostly companies in the United Kingdom, France, Switzerland, and Germany.  It is down 2.6% at $39.85 against a 52-week low of $38.40.  The SPDR EURO STOXX 50 (AMEX: FEZ) tracks the STOXX Europe 50 Index and it is down 2.9% at $26.93 against a 52-week low of $26.10.

This is sort of funny on the surface if you don’t think about the financial and human tragedy that is unfolding.  It is not exactly as though the global economy rose this much when they launched the Euro.  Little reward, massive pain!

Sadly, Europe is starting to feel like Latin America of the 1980s and early 1990s all over again.

JON C. OGG

ETF investors, though, need to keep their eyes on the larger picture in Europe. The Italy-specific iShares MSCI Italy Index ETF (NYSE: EWI), the Germany-specific iShares MSCI Germany Index ETF (NYSE: EWG), the Vanguard MSCI Europe ETF (NYSE: VGK), and the iShares MSCI EMU Index (NYSE: EZU) are good starting points.

The iShares MSCI Italy Index ETF (NYSE: EWI) has lost nearly -6% since the beginning of the year, though it’s only down by about -0.2% in the last 12 months. The fund is relatively small at $118 million, but it traded more than 2 million shares yesterday compared with average daily volume of about 435,000 shares. The NAV has fallen nearly -12% in the past week, including a drop of -6% yesterday.

The iShares MSCI Germany Index ETF (NYSE: EWG) has gained nearly 6% year-to-date and more than 28% in the past 12 months. The fund holds $3.6 billion in assets, of which about 17% are financial services equities compared with nearly 30% of EWI’s holdings in financials. Shares fell about -4.5% yesterday. Average volume is 3.1 million shares, and yesterday’s volume was 5.4 million.

The Vanguard MSCI Europe ETF (NYSE: VGK) has gained about 3.5% year-to-date and nearly 17% in the past 12 months. The fund holds $3.6 billion in assets, with financials making up 20% of the portfolio. The only Italian equity among the top 25 holdings is energy giant Eni SpA. Shares fell -3.6% yesterday on more than three times average volume of 1.1 million shares.

The iShares MSCI EMU Index (NYSE: EZU) has gained about 1.4% year-to-date and about 15% in the past 12 months. Shares fell about -4.7% yesterday. Nearly 21% of holdings are in financials, and only two Italian firms are among the top 25 holdings, Eni and Enel SpA. Total assets in the fund amount to $936 million and trading volume is relatively light at an average of about 500,000 shares/day. Yesterday’s volume hit about 770,000 shares.

EWI has taken a battering in the past week, but the overall picture for European equity ETFs is not too bright either. And while Italy is responsible for some weakness in the past few days, Greece is still the central problem.

How the Eurozone handles the Greek debt problem is still unclear, and none of the proposed solutions has really gained much traction yet.  As long as the richer countries — Germany, France, the Netherlands — resist a permanent solution that involves losses to banks and a much larger bailout fund, Greece is the lit fuse of Europe.

Paul Ausick