Foreign Currencies’ Effects on ETFs

Country-specific exchange traded funds (ETFs) aren’t hedged against the U.S. dollar. As a country’s currency appreciates, you might see better returns for that country’s ETF. For example, the iShares MSCI United Kingdom ETF (EWU) has been a solid performer because of a rising currency and continued economic growth, Carl Delfeld for ETF XRAY reports. EWU is up 9% year-to-date, and CurrencyShares British Pound Sterling (FXB) is up 5%.

Conversely, recent demand for carry trade helped drive down the yen’s value. iShares MSCI Japan Index (EWJ) was down 1.4% for the week (through Thursday), but it gained on 1% Friday.